10-Q

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 June 30, 2014

[ ] 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: 001-11174

MRV COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)

Delaware	06-1340090
(State or other jurisdiction of	(I.R.S. employer
incorporation or organization)	identification no.)

20415 Nordhoff Street, Chatsworth, CA 91311

(Address of principal executive offices, zip code)

(818) 773-0900

(Registrant's telephone number, including area code)

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 check mark, whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes [x]  No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  [ ]	Accelerated filer  [x]
Non-accelerated filer [ ]	Smaller reporting company [ ]
(Do not check if a smaller reporting company)

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

As of August 15, 2014, 7,365,381 shares of Common Stock of MRV Communications, Inc. were outstanding.

1

MRV Communications, Inc.

Form 10-Q for the Quarter Ended June 30, 2014

Index

		Page Number
PART I	Financial Information	3
Item 1.	Unaudited Condensed Consolidated Financial Statements:	3
	Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2014 and 2013	3
	Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three and six months ended June 30, 2014 and 2013	3
	Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2014 and December 31, 2013	5
	Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2014 and 2013	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	34
PART II	Other Information	36
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 6.	Exhibits	38
	Signatures	39

2

PART I - FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements

MRV Communications, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(unaudited)

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2014			2013			2014			2013
Revenue:
Product revenue	$	30,671		$	26,432		$	62,215		$	54,504
Service revenue	12,453			11,743			23,227			22,576
Total revenue	43,124			38,175			85,442			77,080
Cost of sales	28,342			24,803			57,409			50,681
Gross profit	14,782			13,372			28,033			26,399
Operating expenses:
Product development and engineering	5,392			4,454			10,970			9,102
Selling, general and administrative	10,516			9,453			22,038			21,845
Total operating expenses	15,908			13,907			33,008			30,947
Operating loss	(1,126		)	(535		)	(4,975		)	(4,548		)
Interest expense	(40		)	(241		)	(190		)	(373		)
Other expense, net	(420		)	(102		)	(387		)	(85		)
Loss before provision for income taxes	(1,586		)	(878		)	(5,552		)	(5,006		)
Provision for income taxes	681			115			932			421
Net Loss	$	(2,267	)	$	(993	)	$	(6,484	)	$	(5,427	)
Net loss per share — basic	$	(0.31	)	$	(0.13	)	$	(0.89	)	$	(0.72	)
Net loss per share — diluted	$	(0.31	)	$	(0.13	)	$	(0.89	)	$	(0.72	)
Weighted average number of shares:
Basic	7,360			7,585			7,322			7,570
Diluted	7,360			7,585			7,322			7,570

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

MRV Communications, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(unaudited)

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2014			2013			2014			2013
Net Loss	$	(2,267	)	$	(993	)	$	(6,484	)	$	(5,427	)
Other comprehensive loss, net of tax
Foreign currency translation gain (loss)	(123		)	440			(166		)	(395		)
Total comprehensive loss	$	(2,390	)	$	(553	)	$	(6,650	)	$	(5,822	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

MRV Communications, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except par values)

	June 30, 2014			December 31, 2013
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	22,320		$	27,591
Restricted time deposits	250			249
Accounts receivable, net	49,122			49,990
Other receivables	10,353			8,220
Inventories, net	28,485			22,981
Income taxes receivable	814			1,256
Deferred income taxes	1,144			1,219
Other current assets	6,263			5,664
Total current assets	118,751			117,170
Property and equipment, net	5,248			5,555
Deferred income taxes, net of current portion	3,801			3,694
Intangible asset, net	762			873
Other assets	577			655
Total assets	$	129,139		$	127,947
Liabilities and stockholders' equity
Current liabilities:
Short-term debt	$	6,370		$	4,320
Deferred consideration payable	233			233
Accounts payable	27,990			23,991
Accrued liabilities	15,541			19,463
Deferred revenue	13,755			10,557
Other current liabilities	371			357
Total current liabilities	64,260			58,921
Other long-term liabilities	5,509			5,236
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.01 par value: Authorized — 1,000 shares; no shares issued or outstanding	—			—
Common Stock, $0.0017 par value:
Authorized — 16,000 shares
Issued — 8,222 shares in 2014 and 8,143 shares in 2013
Outstanding — 7,365 shares in 2014 and 7,286 in 2013	270			270
Additional paid-in capital	1,284,113			1,281,883
Accumulated deficit	(1,214,821		)	(1,208,337		)
Treasury stock — 856 shares in 2014 and 856 shares in 2013	(10,412		)	(10,412		)
Accumulated other comprehensive income	220			386
Total stockholders' equity	59,370			63,790
Total liabilities and stockholders' equity	$	129,139		$	127,947

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

MRV Communications, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

	Six Months Ended   June 30,
	2014			2013
Cash flows from operating activities:
Net loss	$	(6,484	)	$	(5,427	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	1,128			784
Share-based compensation expense	475			302
Provision for doubtful accounts	(43		)	250
Deferred income taxes	365			(164		)
Loss on disposition of property and equipment	—			17
Changes in operating assets and liabilities:
Accounts receivable	551			(1,593		)
Inventories	(4,902		)	2,512
Other assets	(2,773		)	3,281
Accounts payable	4,163			(1,818		)
Accrued liabilities	(1,857		)	1,916
Deferred revenue	3,230			973
Other current liabilities	—			172
Net cash (used in) provided by operating activities	(6,147		)	1,205
Cash flows from investing activities:
Purchases of property and equipment	(1,176		)	(2,116		)
Release of restricted time deposits	(1		)	(4		)
Net cash used in investing activities	(1,177		)	(2,120		)
Cash flows from financing activities:
Shares repurchased for tax withholdings on vesting of restricted stock awards	(54		)	—
Purchase of treasury shares	—			(1,356		)
Borrowings on short-term debt	12,392			3,102
Payments on short-term debt	(10,297		)	(5,535		)
Net cash provided by (used in) financing activities	2,041			(3,789		)
Effect of exchange rate changes on cash and cash equivalents	12			43
Net decrease in cash and cash equivalents	(5,271		)	(4,661		)
Cash and cash equivalents, beginning of period	27,591			40,609
Cash and cash equivalents, end of period	$	22,320		$	35,948
Supplemental disclosure of cash flow information:
Cash paid during year for interest	$	145		$	169
Cash paid during year for income taxes	$	625		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

MRV Communications, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Summary of significant accounting policies

Organization and nature of operations

MRV Communications, Inc. ("MRV" or the "Company"), a Delaware corporation, is a global supplier of communications solutions to telecommunications service providers, enterprises and governments throughout the world. MRV's products enable customers to provide high-bandwidth data and video services and mobile communications services more efficiently and cost effectively. MRV markets and sells its products worldwide, through a variety of channels, which include a dedicated direct sales force, manufacturers' representatives, value-added-resellers, distributors and systems integrators. MRV conducts its business along two principal segments: the Network Equipment segment and the Network Integration segment. MRV's Network Equipment segment designs, manufactures, sells, and services equipment used by commercial customers, governments, and telecommunications service providers. Products include switches, optical transport platforms, physical layer products and out-of-band management products, and specialized networking products. The Italian Network Integration segment provides network system design, integration and distribution services that include products manufactured by third-party vendors.

Basis of Presentation

The consolidated financial statements include the accounts of MRV and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. MRV consolidates the financial results of less than majority-owned subsidiaries when it has effective control, voting control, or has provided the entity's working capital. When investment by others in these enterprises reduces the Company's voting control below 50%, MRV discontinues consolidation and uses the cost or equity method of accounting for these investments, unless otherwise required.

The consolidated financial statements included herein have been prepared by MRV, and are unaudited, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations although MRV believes that the disclosures are adequate to make the information presented not misleading. The information included in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (this “Form 10-Q”) should be read in conjunction with the Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Form 10-K”) filed with the SEC.

Restricted time deposits represent investments that are restricted as to withdrawal. Restricted time deposits generally secure standby letters of credit, bank lines of credit, or bank loans. Investments in and releases of restricted time deposits are included in investing activities on the Company's Statement of Cash Flows unless the time deposits relate to an underlying bank loan and will be used to repay the loan, in which case the related cash flows are treated as financing activities.

In the opinion of MRV's management, these unaudited statements contain all adjustments, which include normal recurring adjustments, necessary to present fairly the financial position of MRV as of June 30, 2014, and the results of its operations and comprehensive income (loss) for the three and six months endedJune 30, 2014 and 2013, and its cash flows for the six months endedJune 30, 2014 and 2013. The results reported in these financial statements should not be regarded as necessarily indicative of results that may be expected for the full year or any future periods.

7

Correction of an Immaterial Error

During the quarter ended June 30, 2014, the Company made an out-of-period adjustment to defer previously recognized revenue of $2 million, which resulted in an increase to after-tax net loss of $0.1 million for the three and six months ended June 30, 2014. The Company reduced cost of sales by $1.8 million, gross profit by $0.2 million and the provision for income taxes by $0.1 million related to prior periods to remove the effect of the previously recognized revenue. These out of period adjustments also resulted in an increase in Inventory of $1.9 million, deferred revenue of $2 million and deferred income taxes, net of current portion by $0.1 million. The impact on accumulated deficit and stockholder’s equity was a reduction by $0.1 million. The Company evaluated the effects of this adjustment on the Company’s consolidated financial statements and concluded that the error was not material to any prior annual or interim periods. Individually and in the aggregate, these out-of-period adjustments did not have a material impact on the Company’s consolidated financial statements for the quarter and year to date periods ended June 30, 2014.

Recently Issued Accounting Standards

In May 2014, the FASB issued Accounting Stands Update No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," ("ASU 2014-09"). ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is not permitted. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. MRV is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and footnote disclosures.

2. Cash and Cash Equivalents and Restricted Time Deposits

MRV treats highly liquid investments with an original maturity of 90 days or less as cash equivalents. Investments with maturities of less than one year are considered short-term and are included on the balance sheet in restricted time deposits. MRV maintains cash balances and investments in qualified financial institutions, and at various times such amounts are in excess of federal insured limits.

3. Fair Value Measurement

MRV's financial instruments, including cash and cash equivalents, restricted time deposits, accounts receivable, other receivables, other assets, accounts payable, accrued liabilities and short-term debt obligations, are carried at cost, which approximates their fair value due to their short term nature.

ASC 820-10Fair Value Measurementsdefines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820-10 establishes a three-level hierarchy that prioritizes the use of observable inputs. The fair value hierarchy is divided into three levels based on the source of inputs as follows: Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access; Level 2 - Valuations for which all significant inputs are observable, either directly or indirectly, other than level 1 inputs for similar assets and liabilities; Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

As of June 30, 2014 and December 31, 2013, the Company had cash equivalents consisting of money market funds of $11.6 million and $14.0 million, respectively that were classified as Level 1 investments and were quoted at market price. Cash equivalents are included in the consolidated balance sheets as follows (in thousands):

	Cost		Fair Value
December 31, 2013	$	14,001	$	14,001
June 30, 2014	$	11,604	$	11,604

8

During 2014 the Company updated the estimated fair value as of the issuance date of 250,000 warrants that were issued to plaintiffs' counsel on February 18, 2014 in a litigation matter originally recorded as a liability in 2013. In calculating the fair value, the Company used the Black Scholes option pricing model with level 2 inputs including a volatility of 41% based on the Company's historical quoted prices and peer company data, the risk free interest rate of 1.5% and the 5 years expected term of the warrants. Volatility based on both the Company's historical quoted prices and peer company data was used as the Company's stock is thinly traded. The resulting fair value was $6.59 per warrant. In relation to this revaluation, the Company recorded expense of $0.4 million for the three months ended March 31, 2014. No additional expense was recorded in the three months ended June 30, 2014. Upon issuance and revaluation, the warrants were removed from liabilities and recorded as a component of additional paid in capital.

4. Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash and cash equivalents placed with high credit quality institutions and accounts receivable due from customers. MRV evaluates the collectability of accounts receivable based on a combination of factors. If MRV becomes aware of a customer's inability to meet its financial obligations after a sale has occurred, the Company records an allowance to reduce the net receivable to the amount that it reasonably believes to be collectable from the customer. For all other customers, the Company records allowances for doubtful accounts based on the length of time the receivables are past due, the current business environment, and historical experience. If the financial conditions of MRV's customers were to deteriorate or if economic conditions worsen, additional allowances may be required in the future. Accounts receivable are charged off at the point they are considered uncollectible.

The following table summarizes the changes in the allowance for doubtful accounts during the six months endedJune 30, 2014(in thousands):

	Six months ended
	June 30, 2014
Balance at beginning of period	$	2,183
Charged (reversed) to expense	(43		)
Write-offs, net of amounts recovered	2
Foreign currency translation adjustment	(9		)
Balance at end of period	$	2,133

5. Inventories

Inventories are stated at the lower of cost or market and consist of materials, labor and overhead. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. Inventories, net of reserves, consisted of the following (in thousands):

	June 30, 2014		December 31, 2013
Raw materials	$	4,374	$	5,723
Work-in process	1,381		1,121
Finished goods	22,730		16,137
Total	$	28,485	$	22,981

6. Intangible Asset

The balance of the intangible asset was $0.8 million as of June 30, 2014 and $0.9 million as of December 31, 2013. This asset, which represents software license agreements, was not placed in service as of June 30, 2014, therefore amortization of intangible assets was zero for the three and six months endedJune 30, 2014 and June 30, 2013. The terms of the license agreements are definite, and once placed in service, the Company plans to amortize the cost over the estimated useful life, which is approximately 5 years.

9

7. Product Warranty

As of June 30, 2014 and December 31, 2013, MRV's product warranty liability recorded in accrued liabilities was $0.6 million. MRV accrues for warranty costs as part of cost of goods sold based on associated material product costs, technical support labor costs and associated overhead. The products sold are generally covered by a warranty for periods of 90 days to three years.

The following table summarizes the change in product warranty liability during the six months endedJune 30, 2014 (in thousands):

	Six months ended
	June 30, 2014
Beginning balance	$	578
Cost of warranty claims	(18		)
Accruals for product warranties	43
Total	$	603

8. Net Income (Loss) Per Share

Basic net income (loss) per share is computed using the weighted average number of shares of common stock ("Common Stock") outstanding, including restricted shares which, although they are legally outstanding and have voting rights, are subject to vesting and are treated as common stock equivalents in calculating basic income (loss) per share. Diluted net income (loss) per share is computed using the weighted average number of shares of Common Stock outstanding and dilutive potential shares of Common Stock from stock options outstanding during the period. Diluted shares outstanding include the dilutive effect of in-the-money options, which is calculated based on the average share price for each period using the treasury stock method.

Outstanding stock options to purchase 0.4 million shares were excluded from the computation of dilutive shares for the three months ended June 30,2014 and 2013 because of the net loss. In addition, for the three months ended June 30,2014, there were 8,141 potentially dilutive shares excluded from the calculation of diluted net loss per share because they were anti-dilutive, and there were no potentially dilutive shares to be excluded from the calculation of diluted net loss per share for the three months endedJune 30, 2013. Treasury shares are excluded from the number of shares outstanding.

Outstanding stock options to purchase 0.3 million shares were excluded from the computation of dilutive shares for the six months ended June 30,2014 because of the net loss. Outstanding stock options to purchase 0.4 million shares were excluded in the computation of dilutive shares for the six months ended June 30,2013 because of the net loss. In addition, for the six months ended June 30,2014, there were 7,206 potentially dilutive shares excluded from the calculation of diluted net loss per share because they were anti-dilutive, and there were no potentially dilutive shares to be excluded from the calculation of diluted net loss per share for the six months ended June 30,2013. Treasury shares are excluded from the number of shares outstanding.

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9. Share-Based Compensation

MRV records share-based compensation expense in accordance with ASC Topic 718Compensation - Stock Compensation. The following table summarizes the impact on MRV's results of operations of recording share-based compensation for the three and six months endedJune 30, 2014 and 2013 (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
Cost of goods sold	$	33	$	26	$	53	$	43
Product development and engineering	50		15		73		25
Selling, general and administrative	245		42		349		234
Total share-based compensation expense (1)	$	328	$	83	$	475	$	302

(1) Income tax benefits realized from stock option exercises and similar awards were immaterial in both periods.

The Company granted 173,722 stock options during the three months endedJune 30, 2014 and the related fair value was $7.16 per option. The Company granted 85,907 restricted shares during the three months endedJune 30, 2014 and the related fair value was $14.40 per share. The Company granted 80,242 stock options during the three months endedJune 30, 2013 and the related fair value was $4.89 per share. The Company granted 90,387 restricted shares during the three months endedJune 30, 2013 and the related fair value was $9.99 per share. No options and restricted shares were granted during the three months ended March 31, 2014, and 2013. As of June 30, 2014, the total unrecognized share-based compensation balance for unvested securities, net of expected forfeitures, was$1.9 million, which is expected to be amortized over a weighted-average period of2.4 years.

Valuation Assumptions

MRV uses the Black-Scholes option pricing model to estimate the fair value of stock option awards or related modifications. The Black-Scholes model requires the use of subjective and complex assumptions including the option's expected life and the underlying stock price volatility. MRV bases volatility on the Company's historical quoted prices and peer company data. The following weighted average assumptions were used for estimating the fair value of options granted during the six months endedJune 30, 2014 and the options modified during the six months endedJune 30, 2013, respectively.

Six months ended June 30,	2014		2013
Risk-free interest rate	2.0	%	1.2	%
Dividend yield (1)	—		—
Volatility	51	%	52	%
Expected life (in years)	5.9		5.7

(1) As the Company does not pay a dividend on a regular basis, and dividends paid in the past have been special in nature, a dividend rate of zero was used.

10. Segment Reporting and Geographic Information

MRV operates its business in two segments: Network Equipment and Network Integration. Network Equipment designs, manufactures, distributes and services optical networking solutions and Internet infrastructure products, and Network Integration distributes network solutions and Internet infrastructure products and provides value-added integration and support services for customers' networks.

The accounting policies of the segments are the same as those described in the summary of significant accounting polices disclosed in MRV's2013Form 10-K. MRV evaluates segment performance based on revenues, gross profit and operating income (loss) of each segment. As such, there are no separately identifiable Statements of Operations data below operating income (loss).

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The following table summarizes revenues by segment, including intersegment revenues (in thousands):

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2014			2013			2014			2013
Network Equipment	$	21,833		$	21,100		$	44,152		$	42,046
Network Integration	21,355			17,135			41,408			35,117
Before intersegment adjustments	43,188			38,235			85,560			77,163
Intersegment adjustments	(64		)	(60		)	(118		)	(83		)
Total	$	43,124		$	38,175		$	85,442		$	77,080

Network Equipment revenue primarily consists of optical communication systems that include Metro Ethernet equipment, optical transport equipment, lab automation equipment, out-of-band network equipment, and the related service revenue and fiber optic components sold as part of system solutions. Network Integration revenue primarily consists of value-added integration and support service revenue, related third-party product sales (including third-party product sales through distribution) and fiber optic components sold as part of system solutions. All Network Integration's sales are within Italy.

One customer accounted for $23.6 million and $22.2 million of revenue in Network Integration revenue, or 28% and 29% of total revenue, for the six months endedJune 30, 2014 and 2013, respectively. Another customer accounted for $14.2 million and $9.0 million of Network Integration revenue, or 17% and 12% of total revenue, for the six months endedJune 30, 2014 and 2013, respectively.

One customer accounted for $12.6 million and $10.8 million of revenue in Network Integration revenue, or 29% of total revenue, for the three months endedJune 30, 2014 and 2013, respectively. Another customer accounted for $7.7 million and $4.1 million of Network Integration revenue, or 18% and 11% of total revenue, for the three months endedJune 30, 2014 and 2013, respectively.

One customer in Network Integration accounted for 25% and 22% of total net accounts receivable as of June 30, 2014, and December 31, 2013, respectively. Another Network Integration customer accounted for 28% and 27% of total net accounts receivable as of June 30, 2014, and December 31, 2013, respectively.

The following table summarizes external revenue by geographic region (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
United States	$	13,555	$	13,676	$	26,411	$	25,801
Americas (Excluding the U.S.)	126		855		682		2,480
Europe	26,522		21,869		53,101		45,290
Asia Pacific	2,921		1,775		5,248		3,509
Total	$	43,124	$	38,175	$	85,442	$	77,080

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Revenue from external customers attributed to Italy totaled $21.4 million and $17.3 million for the three months ended June 30, 2014 and June 30, 2013 respectively. Revenue from external customers attributed to Italy totaled $41.8 million and $35.4 million for the six months endedJune 30, 2014 and June 30, 2013 respectively.

The following table summarizes long-lived assets, consisting of property and equipment, by geographic region (in thousands):

	June 30, 2014		December 31, 2013
Americas	$	3,199	$	3,326
Europe	2,017		2,194
Asia Pacific	32		35
Total	$	5,248	$	5,555

The following table provides selected Statement of Operations information by business segment (in thousands):

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Gross profit
Network Equipment	$	11,185		$	11,183		$	21,944		$	21,949
Network Integration	3,598			2,187			6,088			4,444
Total before intersegment adjustments	14,783			13,370			28,032			26,393
Corporate unallocated and intersegment adjustments(1)	(1		)	2			1			6
Total	$	14,782		$	13,372		$	28,033		$	26,399
Depreciation expense
Network Equipment	$	433		$	283		$	969		$	583
Network Integration	51			52			100			105
Corporate	20			48			59			96
Total	$	504		$	383		$	1,128		$	784
Operating income (loss)
Network Equipment	$	(1,503	)	$	(296	)	$	(4,343	)	$	(1,415	)
Network Integration	1,704			675			2,550			1,366
Total before intersegment adjustments	201			379			(1,793		)	(49		)
Corporate unallocated operating loss and adjustments (1)	(1,327		)	(914		)	(3,182		)	(4,499		)
Total	$	(1,126	)	$	(535	)	$	(4,975	)	$	(4,548	)

(1) Adjustments reflect the elimination of intersegment revenue and profit in inventory.

13

The following tables provide selected Balance Sheet and Statement of Cash Flow information by business segment (in thousands):

	Six months ended
	June 30,
	2014		2013
Additions to Fixed Assets
Network Equipment	$	1,019	$	2,064
Network Integration	74		46
Corporate	83		6
Total	$	1,176	$	2,116

	June 30, 2014		December 31, 2013
Total Assets
Network Equipment	$	44,798	$	48,955
Network Integration	65,288		54,625
Corporate and intersegment eliminations	19,053		24,367
Total	$	129,139	$	127,947

11. Indemnification Obligations

Our agreements for the sale of our Source Photonics, CES, Interdata and Alcadon businesses include customary indemnification obligations running to the respective buyers.

We have agreements whereby our officers and directors are indemnified for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we retain directors and officers insurance that reduces our exposure and enables us to recover portions of amounts paid. As a result of our insurance coverage, we believe the estimated fair value of these indemnification agreements is minimal. Accordingly, no liabilities have been recorded for these agreements as of June 30, 2014 and December 31, 2013.

12. Litigation

We are subject to legal claims and litigation in the ordinary course of business, including but not limited to product liability, employment and intellectual property claims. The outcome of any such matters is currently not determinable. In addition, we were party to the litigation set forth below.

From June to August 2008, five purported stockholder derivative and securities class action lawsuits were filed in the U.S. District Court in the Central District of California and one derivative lawsuit was filed in the Superior Court of the State of California against the Company and certain of our former officers and directors. The five lawsuits filed in the Central District of California were consolidated. Claims were asserted under Section 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder. In November 2010, the judge overseeing the securities class action lawsuits gave final approval to a stipulated $10.0 million settlement agreement, which was covered by our director and officer insurance policies. The federal and state derivative lawsuits were not settled.

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As of January 4, 2013, all pending litigation in the federal and state derivative actions was stayed by agreement of the parties pending final Federal Court approval of a settlement between derivative plaintiffs, individual defendants and the Company. On April 8, 2013 the Federal Court preliminarily approved a Stipulation of Settlement (the "Settlement Stipulation"), which included, among other things, (a) a release of all claims relating to the derivative litigation for the Company, the individual defendants and the plaintiffs; (b) a provision that $2.5 million in cash be paid to the Company by the Company's insurance carriers; (c) payment of attorneys' fees to plaintiffs' counsel including $500,000 in cash and 250,000 warrants to purchase the Company's Common Stock, with a five-year term and strike price of the closing price of the Company's Common Stock on the date an order of the federal District Court approving the settlement becomes final; (d) the continued payment by the Company of applicable reasonable attorneys' fees for the individual defendants. On June 6, 2013, the Federal Court granted final approval of the Settlement Stipulation and on June 13, 2013 entered Judgment dismissing the federal derivative action with prejudice. On June 24, 2013, the State Court entered a dismissal with prejudice of the state derivative action. The Company was also required to undertake certain corporate governance reform actions, all of which are either in process of implementation or have been implemented.

A majority of the costs related to the Company's and defendants' defense of these actions was paid by the Company's insurance carriers under its director and officer insurance policies, including the securities class action settlement. Insurance proceeds paid to the Company upon settlement of the derivative litigation were $1.0 million. However, MRV has paid and accrued $1.9 million in payment for services of defense counsel and other parties through December 31, 2013 above the insured amount.

In May 2014, a former customer of Tecnonet S.p.A. filed a claim in an Italian civil court alleging that Tecnonet, and its two third-party subcontractors, breached certain supply agreements with the customer, entered into between 2009 and 2011, by failing to have performed the contracted services. The plaintiff further alleges that Tecnonet was aware, at the time of entering the supply agreements, that the customer’s managing director had a conflict of interest involving the subcontractors. The plaintiff is claiming damages and restitution from Tecnonet and the subcontractors, jointly and severally, of approximately $3.0 million in the aggregate, plus costs. While we believe that Tecnonet has valid defenses to the plaintiff's claims, we cannot provide assurance that such claims will not result in any liability to Tecnonet.

From time to time, MRV has received notices from third parties alleging possible infringement of patents with respect to product features or manufacturing processes. Management believes such notices are common in the communications industry because of the large number of patents that have been filed on these subjects. The Company's policy is to discuss these notices with the parties in an effort to demonstrate that MRV's products and/or processes do not violate any patents. The Company has been involved in such discussions with Alcatel-Lucent SA, Apcon, Inc., Finisar Corporation, International Business Machines, Mediacom Broadband LLC, Ortel Communications, Ltd., Nortel Networks Corporation, Rockwell Automation, Inc. and The Lemelson Foundation in the past.

MRV and its subsidiaries have been named as a defendant in other lawsuits involving matters that MRV considers routine to the nature of its business. MRV is of the opinion that the ultimate resolution of such matters will not have a material adverse effect on our business, operating results and financial condition.

13. Accounts Receivable Factoring

The Company's Italian subsidiary has agreements with unrelated third-parties for the factoring of specific accounts receivable in Italy in order to reduce the amount of working capital required to fund such receivables. At June 30, 2014, Tecnonet's factoring facility agreements permitted the factoring of up to €10.0 million, or $13.7 million, worth of receivables in operations outside of the United States. The factoring of accounts receivable under these agreements is accounted for as a sale in accordance with ASC 860 Transfers and Servicing. The Company has no retained interests or servicing liabilities related to the accounts receivable that have been sold in Italy.

At June 30, 2014, and December 31, 2013, the face amount of total outstanding accounts receivable pursuant to these agreements was $12.7 million and $17.2 million, respectively. Receivables transferred to the factor are derecognized at the date of sale and the proceeds are recorded at fair value. Proceeds consist of a receivable due from the factor. Cash received from the factor is recorded as a reduction of the receivable due from the factor. The related outstanding balances due from the factor were $10.0 million and $7.7 million as of June 30, 2014 and December 31, 2013, respectively, and are included in other receivables on the accompanying balance sheets. The related losses on sale were $0.07 million and $0.05 million for the three months endedJune 30, 2014 and June 30, 2013, respectively and $0.11 million and $0.13 million for the six months endedJune 30, 2014 and June 30, 2013, respectively and are included in interest expense on the accompanying consolidated statements of operations.

15

14. Share Repurchase

On December 3, 2012, the Company Board of Directors approved a repurchase of shares of Common Stock of the Company in an amount up to $10.0 million under a stock repurchase program that was scheduled to expire on December 31, 2013. Under this program the Company purchased 141,412 shares at a total cost of approximately $1.4 million during the six months ended June 30, 2013. Since December 3, 2012, the Company purchased 181,717 shares at a total cost of approximately $1.8 million through June 30, 2013. No additional shares were repurchased during the three and six months ended June 30, 2013 under this plan.

On August 15, 2013, the Company Board of Directors terminated the Company's existing    stock repurchase plan and approved a replacement repurchase plan on substantially the same terms in an amount up to $7.0 million that expired on May 14, 2014. Since August 15, 2013 the Company has purchased 127,510 shares at a total cost of approximately $1.3 million through December 31, 2013. No additional shares were repurchased during the three and six months endedJune 30, 2014 under this plan.

15. Income Taxes

The following table provides details of income taxes (in thousands, except percentages):

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Loss before provision for income taxes	$	(1,586	)	$	(878	)	$	(5,552	)	$	(5,006	)
Provision for income taxes	681			115			932			421
Effective tax rate	(43		)%	(13		)%	(17		)%	(8		)%

The effective tax rate fluctuates based on the amount of pre-tax income or loss generated in the various jurisdictions where we conduct operations and pay income tax. The income tax expense on an operating loss of $1.6 million in the second quarter of 2014 is due to income tax associated with our foreign subsidiaries that do not benefit from our federal net operating loss carryforwards and from the accrual of an income tax liability including interest and penalties of $0.3 million on a settlement of a tax audit of a foreign subsidiary. The interest and penalties related to the income tax liability are recognized in the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included in the income tax liability in the consolidated balance sheet.

As of December 31, 2013, we had net operating losses ("NOLs") of $172.3 million, $93.1 million, and $95.8 million for federal, state, and foreign income tax purposes, respectively. Additionally, the Company has capital loss carryforwards of $110.5 million and $24.0 million for federal and state tax purposes, respectively. The capital loss carry forwards, which were generated by the sale of Source Photonics, expire in 2015. Under the Internal Revenue Code, if a corporation undergoes an "ownership change," the corporation's ability to use its pre-change NOLs, capital loss carry forwards and other pre-change tax attributes to offset its post-change income may be limited. An ownership change is generally defined as a greater than 50% change in its equity ownership by value over a three-year period. We may experience an ownership change in the future as a result of subsequent shifts in our stock ownership. If we were to trigger an ownership change in the future, our ability to use any NOLs and capital loss carry forwards existing at that time could be limited. As of June 30, 2014, the US federal and state NOLs had a full valuation allowance.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Financial Statements and Notes thereto included elsewhere in this Form10-Q, and Items 6, 7 and 8 of our2013Form10-K. The discussion in this Form10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and may qualify for the safe harbor provided for in Section21E of the Exchange Act. Forward-looking statements are statements other than statements of historical fact and may be identified by use of such terms as “expects,”“anticipates,”“intends,”“potential,”“estimates,”“believes,”“may,”“should,”“could,”“will,”“would,” and words of similar import.

Forward-looking statements involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected. In addition, the statements in this Form10-Q may involve certain risks, uncertainties and assumptions, the likelihood of which are difficult to assess and may not occur, including risks that each of its business segments may not make the expected progress in its respective market, or that management's long-term strategy may not achieve the expected results. Other risks and uncertainties relate to delayed lead times in receiving components and delayed delivery times to customers due to short-term capacity constraints, potential changes in relationships with MRV's customers and suppliers and their financial condition, MRV's success in developing, introducing and shipping product enhancements and new products, competition in our market segments, market acceptance of new products and our ability to succeed in entering new markets, continued market acceptance of existing products and continued success in selling the products of other companies, product price discounts and general pricing pressure in certain of our markets, the timing and amount of significant orders from customers, obsolete inventory or product returns, warranty and other claims on products, the continued ability of MRV to protect its intellectual property rights and avoid onerous licensing fees, changes in product mix, maturing product life cycles, implementation of operating cost structures that align with revenue growth, political instability in areas of the world in which MRV operates or sells its products and services, currency fluctuations, changes in accounting rules, general economic conditions, as well as changes in such conditions specific to our market segments, maintenance of our inventory and production backlog, supply constraints directly or indirectly caused by natural disasters, litigation, including but not limited to patent infringement claims and litigation related to MRV's historical stock option granting practices.

In light of the risks and uncertainties inherent whenever matters or events expected to occur or not occur in the future are discussed, there can be no assurance that the forward-looking information contained in this Form10-Q will in fact transpire or prove to be accurate. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on our behalf are expressly qualified in their entirety by this introduction. In light of the risks and uncertainties in all such projected operational matters, the inclusion of forward-looking statements in this Form10-Q should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved or that any of the Company's operating expectations will be realized. Revenue and results of operations are difficult to forecast and could differ materially from those projected in the forward-looking statements contained in this Form10-Q for the reasons detailed in Item 1A “Risk Factors” of Part I on the Company's 2013 Form 10-K and as set forth in item 1A of Part II of this Form 10-Q. Readers should not place undue reliance on forward-looking statements, which reflect management's view only as of the date of this Form10-Q. The Company undertakes no obligation to amend this Form10-Q or revise publicly these forward-looking statements (other than pursuant to requirements imposed on registrants pursuant to Item 1A under PartII of Form10-Q) to reflect subsequent events or circumstances. Readers should also carefully review the risk factors described in other documents the Company files from time to time with the SEC and the cautionary statements contained in our press releases when we provide forward-looking information.

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Overview

We supply communications equipment and services to carriers, governments and enterprise customers worldwide. We conduct our business along two principal segments: Network Equipment and Network Integration. We evaluate segment performance based on the revenues, gross profit and operating expenses of each segment. We do not evaluate segment performance on additional financial information. As such, there are no separately identifiable Statements of Operations data below operating income. Our Network Equipment segment primarily provides communications equipment that facilitates access, transport, aggregation and management of voice, data and video traffic in communication networks and data centers used by telecommunications service providers, cable operators, enterprise customers and governments worldwide. Our Network Integration segment operates primarily in Italy, servicing Tier One service providers, regional carriers, large enterprises, and government institutions. Network Integration provides network system design, integration and distribution services that primarily include products manufactured by third party vendors. We market and sell our products worldwide, through a variety of channels, which include a dedicated direct sales force, manufacturers' representatives, value-added-resellers, distributors and systems integrators.

We continue to encounter a highly competitive global marketplace for our product and services, particularly in the Italian market.  Our recent introduction of the OptiDriiver and OptiPacket product lines and the enhancement of existing products are to aggressively seek to capture market share and retain our current customers. We expect the competitive landscape to remain dynamic. As technologies migrate toward being software-driven and the network layers converge, we expect to see our competition increase in the future.

As we seek opportunities for our OptiDriver and Optipacket systems in the markets we serve, additional investment in equipment, inventory, and deployment will be required. These initial investments may burden our results before we see begin to see revenues as the sales cycle for these products can extend out over several months.

In the Italian market, securing new opportunities on the Network Integration side of our business often requires less favorable pricing on the third party products that we sell to Tier One service providers. This less favorable pricing combined with the protracted cash conversion cycle inherent in Italy place cash resources at risk. These market conditions can adversely affect our operations and cause fluctuations in our results.

Our business involves reliance on foreign-based offices. Some of our divisions, outside subcontractors and suppliers are located in foreign countries, including Argentina, Australia, Canada, Denmark, Germany, Israel, Italy, Netherlands, Philippines, Poland, Russia, Taiwan, Thailand, and United Kingdom. For the six months endedJune 30, 2014, and 2013, foreign revenue constituted 69% and 67% of our total revenue, respectively. The majority of our foreign sales are to customers located in the European region, with the remaining foreign sales primarily to customers in the Asia Pacific region.

As of June 30, 2014, the Company had $22.3 million in cash and cash equivalents, $0.3 million in restricted time deposits, and $6.4 million in short-term debt.

Critical Accounting Policies

Our discussion and analysis of the Company's financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. Certain of these critical accounting policies affect working capital account balances, including the policies for revenue recognition, allowance for doubtful accounts, inventory reserves and income taxes. These policies require that we make estimates in the preparation of our financial statements as of a given date.

Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

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Revenue Recognition.    Our major revenue-generating products consist of switches and routers, console management, physical layer products, and fiber optic components. We recognize product revenue, net of sales discounts, returns and allowances, when persuasive evidence of an arrangement exists, delivery has occurred and all significant contractual obligations have been satisfied, the fee is fixed or determinable and collection is considered reasonably assured. Products are generally shipped "FOB shipping point," with no right of return and revenue is recognized upon shipment. If revenue is to be recognized upon delivery, such delivery date is tracked through information provided by the third party shipping company we use to deliver the product to the customer. Network Integration resells third party products. We recognize revenue on these sales on a gross basis, as a principal, because we are the primary obligor in the arrangement, we are exposed to inventory and credit risk, we negotiate the selling prices, and we sell the products as part of a solution in which we provide services. Sales of services and system support are deferred and recognized ratably over the contract period. Sales to end customers with contingencies, such as rights of return, rotation rights, conditional acceptance provisions and price protection, are infrequent and insignificant and are deferred until the contingencies have been satisfied or the contingent period has lapsed. For sales to distributors, we generally recognize revenue when product is sold to the distributor rather than when the product is sold by the distributor to the end user. In certain circumstances, distributors have limited rights of return, including stock rotation rights, and/or are entitled to price protection, where a rebate credit may be provided to the customer if we lower our price on products held in the distributor's inventory. We estimate and establish allowances for expected future product returns and credits. We record a reduction in revenue for estimated future product returns and future credits to be issued to the customer in the period in which revenue is recognized, and for future credits to be issued in relation to price protection at the time we make changes to our distributor price book. We monitor product returns and potential price adjustments on an ongoing basis and estimate future returns and credits based on historical sales returns, analysis of credit memo data, and other factors known at the time of revenue recognition.

We generally warrant our products against defects in materials and workmanship for 90 days to three year periods. The estimated cost of warranty obligations and sales returns and other allowances are recognized at the time of revenue recognition based on contract terms and prior claims experience.

Accounting for Multiple-Element Arrangements. We allocate arrangement consideration at the inception of the arrangement to all deliverables using the relative selling price method. The selling price we use for each deliverable is based on (a) vendor-specific objective evidence if available; (b) third-party evidence if vendor-specific objective evidence is not available; or (c) estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. We allocate discounts in the arrangement proportionally on the basis of the fair value of each deliverable.

Allowance for Doubtful Accounts. We make ongoing estimates relating to the collectability of our accounts receivable and maintain a reserve for estimated losses resulting from the inability of customers to meet their financial obligations to us. In determining the amount of the reserve, we consider our historical level of credit losses and make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Because we cannot precisely predict future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates. If the financial condition of our customers deteriorates, resulting in their inability to make payments, a larger reserve may be required. In the event we determine that a change in the allowance is appropriate, we would record a credit or a charge to selling, general and administrative expense in the period in which we make such a determination.

Concentration of Credit Risk.    Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents placed with high credit quality institutions and accounts receivable due from customers. We perform ongoing credit evaluations of our customers and maintain reserves for potential credit losses.

Inventory.    We make ongoing estimates relating to the net realizable value of inventories, based upon our assumptions about future demand and market conditions. If we estimate that the net realizable value of our inventory is less than the cost of the inventory recorded on our books, we record an adjustment to the cost basis equal to the difference between the cost of the inventory and the estimated net realizable market value. This adjustment is recorded as a charge to cost of goods sold, and includes estimates for excess quantities and obsolete inventory. If changes in market conditions result in reductions in the estimated net realizable value of our inventory below previous estimates, we would make further adjustments in the period in which we make such a determination and record a charge to cost of goods sold. At the time of recording the adjustment, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration of, or increase in, that newly established cost basis.

19

Software Development Costs. Development costs related to software products are expensed as incurred until the technological feasibility of the product has been established. Technological feasibility occurs when a working model is completed or a detail program design exists. After technological feasibility is established, additional costs are capitalized.

We believe that our process for internally developed software is essentially completed concurrent with the establishment of technological feasibility, and, accordingly, no software development costs for internally developed software have been capitalized to date.

Internal Use Software Development. Any software that we acquire, internally develop, or modify solely to meet our internal needs, and for which we have no substantive plan to market the software externally, is capitalized.

Income Taxes. As part of the process of preparing our interim financial statements, we estimate the income taxes in each of the jurisdictions in which we operate based on the estimated effective tax rate by jurisdiction. This process involves estimating the current income tax exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for income tax and accounting purposes. These differences result in deferred income tax assets and liabilities, which are included in our Balance Sheets. We assess the likelihood that our deferred income tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we include an expense within the income tax provision in the Statements of Operations.

We utilize significant management judgment to determine the provision for income taxes, deferred income tax assets and liabilities, including uncertain tax positions, and any valuation allowance recorded against net deferred income tax assets. Management periodically evaluates the deferred income tax assets as to whether it is likely that the deferred income tax assets will be realized. We establish a valuation allowance on the deferred income tax asset at the time we determine the asset is not likely to be realized. If we later determine that it is more likely than not that a deferred tax asset will be realized, we release the valuation allowance and record a credit within the Statements of Operations.

Share-Based Compensation.    We determine the fair value of stock options using the Black-Scholes valuation model. The assumptions used in calculating the fair value of share-based payment awards represent our best estimates. Our estimates may be impacted by certain variables including stock price volatility, employee stock option exercise behaviors, additional stock option grants, estimates of forfeitures, and the related income tax impact. (See Note 9 “Share-Based Compensation” to the Financial Statements in Item 1, Part 1 of this Form 10-Q for further discussion.)

Correction of an Immaterial Error

During the quarter ended June 30, 2014, the Company made an out-of-period adjustment to defer previously recognized revenue of $2 million, which resulted in an increase to after-tax net loss of $0.1 million for the three and six months ended June 30, 2014. The Company reduced cost of sales by $1.8 million, gross profit by $0.2 million and the provision for income taxes by $0.1 million related to prior periods to remove the effect of the previously recognized revenue. These out of period adjustments also resulted in an increase in Inventory of $1.9 million, deferred revenue of $2 million and deferred income taxes, net of current portion by $0.1 million. The impact on accumulated deficit and stockholder’s equity was a reduction by $0.1 million. The Company evaluated the effects of this adjustment on the Company’s consolidated financial statements and concluded that the error was not material to any prior annual or interim periods. Individually and in the aggregate, these out-of-period adjustments did not have a material impact on the Company’s consolidated financial statements for the quarter and year to date periods ended June 30, 2014.

20

Currency Rate Fluctuations

Changes in the relative values of non-U.S. currencies to the U.S. dollar affect our results. We conduct a significant portion of our business in foreign currencies, including the Euro, the Taiwan dollar and the Israeli new shekel. For the six months ended June 30,2014 and 2013, 69% and 67% of revenue and 43% and 39% of operating expenses, respectively, were incurred at subsidiaries with a reporting currency other than the U.S. dollar. For the six months ended June 30,2014, these currencies strengthened slightly against the U.S. dollar compared to the six months ended June 30,2013, so revenue and expenses in these currencies translated into slightly fewer dollars than they would have in the prior period. The Euro and Israeli new shekel strengthened 4% and 5% respectively against the U.S. dollar in six months ended June 30,2014 compared to six months ended June 30,2013. The Company's Taiwan subsidiary, Appointech, Inc., is included in Network Equipment that also includes our Optical Communications Systems ("OCS") division. Relative to OCS, the revenues and related operating gross profit and operating expenses are not material and the change in foreign currency did not have a material impact on the results for the three and six months endedJune 30, 2014 compared to the three and six months endedJune 30, 2013. Additional discussion of foreign currency risk and other market risk is included in Part I, Item 3 “Quantitative and Qualitative Disclosures About Market Risk” of this Form 10-Q.

Management Discussion Snapshot

The following table sets forth, for the periods indicated, certain consolidated and segment Statements of Operations data (dollars in thousands):

	Three months ended June 30,										Six months ended June 30,
	2014					2013					2014					2013
	$			% (1)		$			% (1)		$			%(1)		$			% (1)
Revenue(1) (2)	$	43,124		100	%	$	38,175		100	%	$	85,442		100	%	$	77,080		100	%
Network Equipment	21,833			51		21,100			55		44,152			52		42,046			55
Network Integration	21,355			50		17,135			45		41,408			48		35,117			46
Gross profit (3)	$	14,782		34		$	13,372		35		$	28,033		33		$	26,399		34
Network Equipment	11,185			51		11,183			53		21,944			50		21,949			52
Network Integration	3,598			17		2,187			13		6,088			15		4,444			13
Operating expenses (4)	$	15,908		37		$	13,907		36		$	33,008		39		$	30,947		40
Network Equipment	12,688			58		11,480			54		26,287			60		23,364			56
Network Integration	1,894			9		1,511			9		3,538			9		3,078			9
Operating income (loss) (3) (4)	$	(1,126	)	(3	)	$	(535	)	(1	)	$	(4,975	)	(6	)	$	(4,548	)	(6	)
Network Equipment	(1,503		)	(7	)	(296		)	(1	)	(4,343		)	(10	)	(1,415		)	(3	)
Network Integration	1,704			8		675			4		2,550			6		1,366			4

___________________________________

(1) Consolidated Statements of Operations data and segment revenue data express percentages as a percentage of consolidated revenue. Other Statements of Operations data by segment express percentages as a percentage of applicable segment revenue.

(2) Revenue information by segment includes intersegment revenue reflecting sales of Network Equipment to Network Integration.

(3) Consolidated gross profit data reflects adjustments for intersegment eliminations.

(4) Consolidated operating expenses include corporate unallocated operating expenses.

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Three months ended June 30,2014 Compared to the Three months ended June 30,2013

Revenue

The following table summarizes revenue by segment, including intersegment sales (dollars in thousands):

							Favorable/(Unfavorable)
Three months ended June 30:	2014			2013			$ Change			% Change		% Change constant currency(1)
Network Equipment	$	21,833		$	21,100		$	733		3	%	3	%
Network Integration	21,355			17,135			4,220			25		19
Before intersegment adjustments	43,188			38,235			4,953			13		10
Intersegment adjustments (2)	(64		)	(60		)	(4		)	7		7
Total	$	43,124		$	38,175		$	4,949		13	%	10	%

___________________________________

(1) Percentage information in constant currencies in the table above and in the text below excludes the effect of foreign currency translation on reported results. Constant currency results were calculated by translating the current year results at prior year average exchange rates.

(2) Adjustments represent the elimination of intersegment revenue.

Consolidated revenue for the second quarter of 2014increased $4.9 million, or 13%, compared to the second quarter of 2013, due to a $4.2 million, or 25%, increase in Network Integration revenue, and a $0.7 million, or 3%, increase in Network Equipment revenue. The above discussion includes the out-of-period adjustment of $2 million related to deferred revenue which decreased consolidated revenue in the current period.

Network Equipment.    Revenue generated from Network Equipment increased $0.7 million, or 3%, in the second quarter of 2014 compared to the second quarter of 2013. The increase is primarily due to higher product revenues that were partially offset by lower service revenue volume. Revenues for our carrier Ethernet networking, optical transport and out of band products increased in the second quarter of 2014 compared to same period in the prior year, which was partially offset by a decrease in network infrastructure management. Service revenues were down 8% in the second quarter of 2014 compared to the same period last year primarily due to the roll off of older deferred service contracts that related to revenues scheduled for recognition prior to the effective date of ASU 2009-13. Geographically, the increase in revenues at Network Equipment was attributable to growth in our Europe and Asia Pacific regions. The improvement in our Europe region was attributable to increased sales to our large customers and channel partners. In Asia Pacific, there was increased order volume over the same period in the prior year from a Tier One carrier. Our Americas region was primarily down due to delays on some orders from some of our larger South American customers. The foreign exchange impact to Network Equipment revenue was not material.

The following table summarizes Network Equipment revenue by geographic region (dollars in thousands):

					Favorable/(Unfavorable)
Three months ended June 30:	2014		2013		$ Change			% Change
Revenue, excluding intersegment sales:
Americas	$	13,554	$	13,675	$	(121	)	(1	)%
Americas (Excluding the U.S.)	126		855		(729		)	(85	)
Europe	5,167		4,734		433			9
Asia Pacific	2,922		1,776		1,146			65
Total external sales	21,769		21,040		729			3
Sales to Network Integration:
Europe	64		60		4			7
Total intersegment sales	64		60		4			7
Total Network Equipment revenue	$	21,833	$	21,100	$	733		3	%

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Network Integration.    Revenue generated from Network Integration increased $4.2 million, or 25%, in the second quarter of 2014 compared to the second quarter of 2013. The $4.2 million increase in revenue was due to a $3.3 million, or 41%, increase in product revenue and a $0.9 million, or 10%, increase in service revenues at Tecnonet. Tecnonet has seen an increase in product revenue order volume arising from large orders from the two largest telecommunication carriers in Italy. The increase in service revenue was the result of our continued focus on this aspect of the business that has higher margins. Total revenue from this segment would have been $1.0 million, or 5% lower in the second quarter of 2014, compared to the second quarter of 2013, had foreign currency exchange rates remained the same as they were in the second quarter of 2013. All revenue in Network Integration was generated in Italy. The above discussion includes the out-of-period adjustment of $2 million related to deferred revenue which decreased Network Integration revenue in the current period.

Gross Profit

The following table summarizes gross profit by segment (dollars in thousands):

						Favorable/(Unfavorable)
Three months ended June 30:	2014			2013		$ Change			% Change		% Change constant currency (1)
Network Equipment		$11,185			$11,183		$2		—	%	—	%
Network Integration	3,598			2,187		1,411			65		57
Before intersegment adjustments	14,783			13,370		1,413			11		9
Adjustments (2)	(1		)	2		(3		)	(150	)	(80	)
Total		$14,782			$13,372		$1,410		11	%	9	%

(1) Percentage information in constant currencies in the table above and in the text below excludes the effect of foreign currency translation on reported results. Constant currency results were calculated by translating the current year results at prior year average exchange rates.

(2) Adjustments represent the change in the elimination of intersegment profit in ending inventory in order to reconcile to consolidated gross profit.

Consolidated gross profit increased $1.4 million in the second quarter of 2014 compared to the prior year second quarter, principally due to the 13%increase in revenue that was partially offset by a 70 basis points decline in gross profit as a percentage of revenue (gross margin), which was primarily due to pressure on pricing and revenue mix. Gross margin for the second quarter of 2014 was 34.3%, as compared to 35.0% in the second quarter of 2013. The decrease was due to the shift of segment revenue mix toward a higher percentage of total revenue coming from Network Integration, which has lower gross margins than Network Equipment, and a decrease in Network Equipment gross margins. These decreases in gross margin were partially offset by a more favorable consolidated product to service revenue mix in the second quarter of 2014 as compared to the second quarter of 2013. In the second quarter of 2014, the consolidated effect of the change in constant currency was 9%, due to fluctuation of the Euro. The above discussion includes the out-of-period adjustment of $0.2 million related to deferred revenue which decreased consolidated gross profit in the current period.

Network Equipment.  Gross profit for Network Equipment in the second quarter of 2014 decreased compared to the second quarter of the prior year. The effect of higher sales volume was essentially offset by a 180 basis point decrease in gross margins. We had a shift in the mix of product revenue toward our lower gross margin products, a negative effect on costs from lower production volume efficiency, and to a lesser extent, a write down of inventory. These effects partially offset by lower production labor and overhead costs arising from cost saving initiatives implemented during the fourth quarter of 2013.

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Network Integration.  Gross profit in the second quarter of 2014 as compared to the second quarter of 2013 for Network Integration increased $1.4 million, or 65%. The increase was essentially the result of the volume impact of the $4.2 million increase in revenue. Gross margins increased 410 basis points in the second quarter compared to the second quarter last year due to an improvement in product revenue gross margins. In first half of 2014, we experienced an easing of the competitive pressure present during the first half of 2013 that resulted in significantly lower product revenue gross margins on second quarter 2013 product revenues. In the second quarter of 2014, the effect of the change in constant currency was $0.2 million, or 5%, compared to the second quarter of 2013. The above discussion includes the out-of-period adjustment of $0.2 million related to deferred revenue which decreased Network Integration gross profit in the current period.

Operating Expenses

The following table summarizes operating expenses by segment (dollars in thousands):

					(Favorable)/Unfavorable
Three months ended June 30:	2014		2013		$ Change		% Change		% Change constant currency (1)
Network Equipment		$12,688		$11,480		$1,208	11	%	11	%
Network Integration	1,894		1,511		383		25	%	19	%
Total segment operating expenses	14,582		12,991		1,591		12	%	12	%
Corporate unallocated operating expenses and adjustments (2)	1,326		916		410		45	%	45	%
Total		$15,908		$13,907		$2,001	14	%	14	%

(1) Percentage information in constant currencies in the table above and in the text below excludes the effect of foreign currency translation on reported results. Constant currency results were calculated by translating the current year results at prior year average exchange rates.

(2) Corporate unallocated operating expenses include unallocated product development, and selling, general and administrative expenses.

Consolidated operating expenses in the second quarter of 2014 were $15.9 million, or 37% of revenue, compared to $13.9 million, or 36% of revenue, in the second quarter of 2013, an increase of $2.0 million. The increase is primarily due to an increase in Network Equipment expenses of $1.2 million and an increase of $0.4 million in expenses at Network Integration and a $0.4 million increase of Corporate unallocated operating expenses as discussed below.

Network Equipment.    Operating expenses in Network Equipment for the second quarter of 2014 were $12.7 million, or 58% of revenue, compared to $11.5 million, or 54% of revenue in the second quarter of 2013. The $1.2 million, or 11%, increase was planned for and was due to a $0.8 million increase in salary costs for engineers supporting our product development initiatives, $0.3 million increase in salaries to realign the U.S. sales organization and a $0.3 million increase in administrative labor. These increases were offset by a $0.2 million decrease in external consulting expenses.

Network Integration.    Operating expenses in Network Integration for the second quarter of 2014 were $1.9 million, or 9% of revenue, compared to $1.5 million, or 9% of revenue, in the second quarter of 2013. The increase was mainly due to $0.2 million of sales labor support costs to support increased revenue volume and an increase of $0.2 million in administrative overhead. In the second quarter of 2014, the consolidated effect of the increase in constant currency was $0.1 million or 5% compared to the second quarter of 2013.

Corporate. Corporate expenses increased by $0.4 million in the second quarter of 2014 compared to the second quarter of 2013, which included an insurance recovery of $1.0 million for legal fees incurred during the derivative litigation that was settled in June 2013. Other items leading to the $0.4 million remaining variance included $0.3 million in lower labor and consulting fees and $0.3 million in lower legal fees incurred during the period.

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Operating Income (Loss)

The following table summarizes operating income (loss) by segment (dollars in thousands):

							Favorable/(Unfavorable)
Three months ended June 30:	2014			2013			$ Change			% Change		% Change constant currency(1)
Network Equipment		($1,503	)		($296	)		($1,207	)	408	%	406	%
Network Integration	1,704			675			1,029			152		140
Total segment operating income (loss)	201			379			(178		)	(47	)	(69	)
Corporate unallocated and adjustments (2)	(1,327		)	(914		)	(413		)	(45	)	45
Total		($1,126	)		($535	)		($591	)	110	%	125	%

(1) Percentage information in constant currencies in the table above and in the text below excludes the effect of foreign currency translation on reported results. Constant currency results were calculated by translating the current year results at prior year average exchange rates.

(2)  Adjustments represent the elimination of intersegment revenue and profit in inventory in order to reconcile to consolidated operating income (loss).

Network Equipment.   Network Equipment reported an operating loss of $1.5 million and $0.3 million in the second quarter of 2014 and 2013, respectively. The change in operating loss was due to a $1.2 million planned increase in operating expenses. Operating margin was (7)% in 2014 and (1)% in 2013.

Network Integration.   Network Integration reported operating income of $1.7 million for the second quarter of 2014, compared to $0.7 million in the second quarter of 2013. Excluding the out-of-period adjustment related to deferred revenue, which would have increased Network Integration operating income by $0.2 million, the increase was primarily due to the $1.4 millionincrease in gross profit that was partially offset by a $0.3 million increase in operating costs. Network Integration operating margin was 8% and 4% for the three months endedJune 30,2014 and 2013, respectively.

Interest Expense and Other Expense, Net

Interest expense was $0.04 million in the second quarter of 2014 compared to $0.2 million in the second quarter of 2013. Other expense, net, principally includes interest income on cash, cash equivalents and investments and gains and losses on foreign currency transactions and the litigation settlement.

Provision for Income Taxes

The tax provision for the three months ended June 30, 2014 and 2013 was $0.7 million and $0.1 million, respectively. Our income tax provision fluctuates based on the amount of pre-tax income or loss generated in the various jurisdictions where we conduct operations and pay income tax. The income tax expense on the loss before provision for income taxes of $1.6 million in the second quarter of 2014 is due to income tax associated with our foreign subsidiaries that do not benefit from our federal net operating loss carryforwards and from the accrual of an income tax liability, including interest and penalties, of $0.3 million on a settlement of a tax audit of a foreign subsidiary.

Italy Tax Audit Settlement

In 2013 the Italian Tax Authorities commenced an examination of Tecnonet S.p.A., a wholly owned foreign subsidiary, and proposed a 100% disallowance of the deduction of certain sponsorship and advertising expenses for the years 2006 to 2011. We felt strongly that the deductions were fully supported by Italian tax law and that we would more likely than not prevail if we litigated the disallowance in the Italian tax courts. Therefore, there was no unrecognized benefit or income tax liability accrued in 2013 and the first quarter of 2014 related to this tax audit. During the second quarter of 2014, the Italian tax authorities offered to reduce the 100% disallowance by 45% and then by 60% (“60% offer”). Our local outside tax advisers have advised us that the 60% offer is a good result and that litigating the matter in Italian courts may be a protracted process despite the strong technical merits of our tax position. In consideration of our tax adviser’s assessment and our desire to resolve this uncertainty, management accepted the 60% offer and settled with the Italian tax authorities in July 2014.

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In accordance with ASC 740 and our accounting policy the interest and penalties of $0.1 million related to the accrued income tax expense of $0.2 million are recognized in the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included in the related income tax liability in the consolidated balance sheet. The interest and penalties of $0.1 million and accrued VAT expense of $0.1 million related to the settlement are recognized in the other expenses line in the accompanying consolidated statement of operations. Accrued interest and penalties are included in the related current accrued liability in the consolidated balance sheet.

Tax Loss Carryforwards

As of December 31, 2013, we had net operating losses ("NOLs") of $172.3 million, $93.1 million, and $95.8 million for federal, state, and foreign income tax purposes, respectively. Additionally, the Company has capital loss carryforwards of $110.5 million and $24.0 million for federal and state tax purposes, respectively. The capital loss carry forwards, which were generated by the sale of Source Photonics, expire in 2015. Under the Internal Revenue Code, if a corporation undergoes an "ownership change," the corporation's ability to use its pre-change NOLs, capital loss carry forwards and other pre-change tax attributes to offset its post-change income may be limited. An ownership change is generally defined as a greater than 50% change in its equity ownership by value over a three-year period. We may experience an ownership change in the future as a result of subsequent shifts in our stock ownership. If we were to trigger an ownership change in the future, our ability to use any NOLs and capital loss carry forwards existing at that time could be limited. As of June 30, 2014, the US federal and state NOLs had a full valuation allowance.

Six months ended June 30, 2014 Compared To Six months ended June 30, 2013

Revenue

The following table summarizes revenue by segment, including intersegment sales (dollars in thousands):

							Favorable/(Unfavorable)
Six months ended June 30:	2014			2013			$ Change			% Change		% Change constant currency(1)
Network Equipment group	$	44,152		$	42,046		$	2,106		5	%	5	%
Network Integration group	41,408			35,117			6,291			18		13
Before intersegment adjustments	85,560			77,163			8,397			11		9
Intersegment adjustments (2)	(118		)	(83		)	(35		)	42		41
Total	$	85,442		$	77,080		$	8,362		11	%	9	%

___________________________________

(1) Percentage information in constant currencies in the table above and in the text below excludes the effect of foreign currency translation on reported results. Constant currency results were calculated by translating the current year results at prior year average exchange rates.

(2) Adjustments represent the elimination of intersegment revenue.

Consolidated revenue for the six months ended June 30,2014increased $8.4 million, or 11%, compared to the comparable period of 2013. This increase was due to a $6.3 million increase in Network Integration revenue, a $2.1 million increase in Network Equipment revenue, and a $0.04 million decrease in Intersegment adjustments, which are eliminated in consolidation. Consolidated revenue would have been $1.8 millionlower if foreign currency exchange rates had remained the same as they were in the first six months of 2013. The above discussion includes the out-of-period adjustment of $2 million related to deferred revenue which decreased consolidated revenue in the current period.

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Network Equipment Group.    Revenue generated from the Network Equipment group increased $2.1 million in the six months ended June 30,2014 compared to the six months ended June 30,2013. Revenues increased primarily due to a $2.8 million increase in product revenue offset by a $0.7 million decrease in service revenue. Revenues for our carrier Ethernet networking and out of band products increased during the first six months 2014 compared to the prior year period, which was partially offset by a decrease in optical transport products. Service revenues were down 11% as compared to same period last year primarily due to the roll off of older deferred service contracts that related to revenues scheduled for recognition prior to the effective date of ASU 2009-13. Geographically, Asia Pacific and Europe revenues increased $3.3 million that was partially offset by a $1.2 million decrease in OCS Americas. The decrease in OCS Americas was primarily due to a revenue decline South American portion of the region that was partially offset by modest revenue growth in the North American portion of the region.

The following table summarizes Network Equipment revenue by geographic region (dollars in thousands):

					Favorable/(Unfavorable)
Six months ended June 30:	2014		2013		$ Change			% Change
Revenue, excluding intersegment sales:
Americas	$	26,411	$	25,800	$	611		2	%
Americas (Excluding the U.S.)	682		2,480		(1,798		)	(73	)%
Europe	11,693		10,173		1,520			15
Asia Pacific	5,249		3,510		1,739			50
Total external sales	$	44,035	$	41,963	$	2,072		5
Sales to Network Integration group:
Europe	117		83		34			41
Total intersegment sales	117		83		34			41
Total Network Equipment revenue	$	44,152	$	42,046	$	2,106		5	%

Network Integration Group.    Revenue generated from the Network Integration group was $6.3 million, or 18% higher for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. This increase was due to a $5 million, or 28% increase in product revenue and $1.3 million, or 8% increase in service revenues at Tecnonet. Tecnonet has seen an increase in product revenue order volume as a result of increasing its market share. The increase in service revenue was a result of our continued focus on this aspect of the business that has higher margins and potential for growth. Revenue would have been $1.8 millionlower for the six months ended June 30, 2014 had foreign currency exchange rates remained the same as they were in the six months ended June 30, 2013. All revenue in the Network Integration group was generated in Italy. The above discussion includes the out-of-period adjustment of $2 million related to deferred revenue which decreased Network Integration revenue in the current period.

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Gross Profit

The following table summarizes gross profit by segment (dollars in thousands):

					Favorable/(Unfavorable)
Six months ended June 30:	2014		2013		$ Change			% Change		% Change constant currency (1)
Network Equipment group	$	21,944	$	21,949	$	(5	)	—	%	—	%
Network Integration group	6,088		4,444		1,644			37		31
Before intersegment adjustments	28,032		26,393		1,639			6		5
Adjustments (2)	1		6		(5		)	(83	)	(80	)
Total	$	28,033	$	26,399	$	1,634		6	%	5	%

(1) Percentage information in constant currencies in the table above and in the text below excludes the effect of foreign currency translation on reported results. Constant currency results were calculated by translating the current year results at prior year average exchange rates.

(2) Adjustments represent the change in the elimination of intersegment profit in ending inventory in order to reconcile to consolidated gross profit.

Consolidated gross profit increased $1.6 million, or 6% for the six months ended June 30, 2014 from the prior year period, due to the 11%increase in revenue that was partially offset by a decrease in gross margin from 34% to 33%. The decline in gross margins was due to the shift of segment revenue mix toward a higher percentage of total revenue coming from Network Integration, which has lower gross margins than Network Equipment, and due to a decrease in Network Equipment gross margins. These decreases in gross margin were partially offset by a more favorable consolidated product to service revenue mix in the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. Gross profit would have been $0.3 millionlower for the six months ended June 30, 2014 if foreign currency exchange rates had remained the same as they were in the first six months of 2013. The above discussion includes the out-of-period adjustment of $0.2 million related to deferred revenue which decreased consolidated gross profit in the current period.

Network Equipment Group.    Gross profit for Network Equipment for the six months ended June 30, 2014 remained unchanged compared to the six months ended June 30, 2013. The effect of higher sales volume was essentially offset by a 250 basis point decrease in gross margins. An increase in sales to our European channel partners, which have lower gross margins and lower pricing of mature products in advance of new products combined to have a negative impact on Network Equipment's gross margins. In addition, we had a shift in the mix of product revenue toward our lower gross margin products, a negative effect from lower volume efficiency within service gross margins, and a write down of inventory being replaced with our newly launched OptiDriver product line. These effects partially offset by lower production labor and overhead costs arising from cost saving initiatives implemented during the fourth quarter of 2013. Gross profit would have been flat in the six months of 2014 had foreign currency exchange rates remained the same as they were in the first six months of 2013.

Network Integration Group.    Gross profit for the Network Integration group increased $1.6 million, or 37% for the six months ended June 30, 2014 as compared to six months ended June 30, 2013. Excluding the out-of-period adjustment in gross profit of $0.2, the increase was primarily due to an $6.3 million increase in revenue for the six months ended June 30, 2014 compared to the prior year period as discussed above. In addition, gross margins increased 200 basis points for the six months ended June 30, 2014 compared to the prior year period due to an improvement in product revenue gross margins. In first half of 2014, we experienced an easing of the competitive pressure present during the first half of 2013 that resulted in significantly lower product revenue gross margins on first half 2013 product revenues. Gross profit would have been $0.3 millionlower in the first six months of 2014 had foreign currency exchange rates remained the same as they were in the first six months of 2013. The above discussion includes the out-of-period adjustment of $0.2 million related to deferred revenue which decreased Network Integration gross profit in the current period.

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Operating Expenses

The following table summarizes operating expenses by segment (dollars in thousands):

					(Favorable)/Unfavorable
Six months ended June 30:	2014		2013		$ Change			% Change		% Change constant currency (1)
Network Equipment group		$26,287		$23,364		$2,923		13	%	13	%
Network Integration group	3,538		3,078		460			15	%	10	%
Total segment operating expenses	29,825		26,442		3,383			13	%	374	%
Corporate unallocated operating expenses and adjustments (2)	3,183		4,505		(1,322		)	(29	)%	(29	)%
Total		$33,008		$30,947		$2,061		7	%	6	%

(1) Percentage information in constant currencies in the table above and in the text below excludes the effect of foreign currency translation on reported results. Constant currency results were calculated by translating the current year results at prior year average exchange rates.

(2) Corporate unallocated operating expenses include unallocated product development, and selling, general and administrative expenses.

Consolidated operating expenses were $33.0 million, or 39% of revenue, for the first six months of 2014 compared to $30.9 million, or 40% of revenue, for the prior year period, an increase of $2.1 million, or 7%, $1.0 million of which was due to insurance proceeds recorded in the second quarter of 2013 in conjunction with a derivative litigation settled that quarter. The remaining increase included a $2.9 million increase in Network Equipment and $0.5 million increase in Network Integration related to investments in the core business offset by a $0.3 million decrease in Corporate, excluding the effect of the insurance proceeds.

Network Equipment Group.    Operating expenses in the Network Equipment group for the first six months of 2014 were $26.3 million, or 60% of revenue, compared to $23.4 million, or 56% of revenue in the prior year period of 2013. The $2.9 million or 13% increase was due to $1.9 million in additional costs related to the planned higher investment in engineering and product development to drive future product development, an increase of $1.0 million in sales and back office support costs.

Network Integration Group.    Operating expenses in the Network Integration group for the first six months of 2014 were $3.5 million, or 9% of revenue, compared to $3.1 million, or 9% of revenue, for the prior year period. The $0.5 million or 15% increase .in operating expense was primarily due to additional sales and administrative labor costs. Operating expenses would have been $0.1 millionlower in the first six months of 2014 had foreign currency exchange rates remained the same as they were in the prior year period.

Corporate. Operating expenses decreased $1.3 million in the first six months of 2014 compared to the first six months of 2013. This decrease partially resulted from $1.1 million in lower labor and consulting fees incurred during the 2013 transition of the corporate office and $0.4 million in lower auditing fees and accounting support fees arising from improved processes and a change in auditing firms. The six months ended June 30, 2013 were also burdened by $1.3 million in legal fees costs arising from the derivative litigation that was settled in June 2013 and costs for an investigation of claims by a former employee that were partially offset by $1.0 million in insurance recovery for legal fees incurred during the derivative litigation that was settled in June 2013. These decreases were partially offset by recording a charge in the first six months of 2014 of $0.4 million for the revaluation of warrants issued in accordance with the June settlement of the derivative litigation.

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Operating Income (Loss)

The following table summarizes operating income (loss) by segment (dollars in thousands):

							Favorable/(Unfavorable)
Six months ended June 30:	2014			2013			$ Change			% Change		% Change constant currency(1)
Network Equipment group	$	(4,343	)	$	(1,415	)	$	(2,928	)	207	%	207	%
Network Integration group	2,550			1,366			1,184			87		78
Total segment operating income (loss)	(1,793		)	(49		)	(1,744		)	3,559		3,802
Corporate unallocated and adjustments (2)	(3,182		)	(4,499		)	1,317			29		(29	)
Total	$	(4,975	)	$	(4,548	)	$	(427	)	9	%	12	%

(1)  Percentage information in constant currencies in the table above and in the text below excludes the effect of foreign currency translation on reported results. Constant currency results were calculated by translating the current year results at prior year average exchange rates.

(2)  Adjustments represent the elimination of intersegment revenue and profit in inventory in order to reconcile to consolidated operating income (loss).

The $1.6 million, or 6%, increase in gross profit and the $2.1 million, or 7%, increase in operating expenses primarily led to a $0.4 million increase in our operating loss. Our operating loss would have been $0.1 million lower in the first six months of 2014 had foreign currency exchange rates remained the same as they were in the prior year period. Operating losses included share-based compensation expense of $0.5 million and $0.3 million in the first six months of 2014 and 2013, respectively. The Company recorded an out-of-period adjustment that increased the consolidated operating loss by $0.2 million for the six months ended June 30, 2014.

Network Equipment Group.    The Network Equipment group reported an operating loss of $4.3 million and $1.4 million in the first six months of 2014 and 2013, respectively. The change in operating profit was due to the $2.9 million planned increase in operating expenses. Operating margin was (10)% in the first six months of 2014 and (3)% in 2013, respectively.

Network Integration Group.    The Network Integration group reported operating income of $2.6 million for the first six months of 2014, compared to operating income of $1.4 million for the prior year period. The increase in operating profit was primarily due to the 18% increase in Network Integration revenues. The Network Integration group operating margin was 6% in the first six months of 2014 compared to 4% in the first six months of 2013. The Network Integration group recorded an out-of-period adjustment that increased its operating loss by $0.2 million for the six months ended June 30, 2014.

Interest Expense and Other Expense, Net

Interest expense was $0.2 million in the six months ended June 30,2014 and $0.4 million the six months ended June 30,2013, respectively. Other expense, net, principally includes interest income on cash, cash equivalents and investments and gains and losses on foreign currency transactions.

Provision for Income Taxes

The tax provision for the six months ended June 30,2014 and 2013 was $0.9 million and $0.4 million, respectively. Our income tax provision fluctuates based on the amount of pre-tax income or loss generated in the various jurisdictions where we conduct operations and pay income tax. The income tax expense on the loss before provision for income taxes of $5.6 million for the six months endedJune 30, 2014, is due to income tax associated with our foreign subsidiaries that do not benefit from our federal net operating loss carryforwards and from the accrual of an income tax liability, including interest and penalties, of $0.3 million on a settlement of a tax audit of a foreign subsidiary.

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Liquidity and Capital Resources

During the six months ended June 30, 2014, our cash and restricted time deposits decreased from $27.8 million to $22.6 million, a decrease of $5.3 million. Our cash outflows included a net loss adjusted for non-cash expenses of $4.6 million including depreciation and amortization, share-based compensation, provision for doubtful accounts, and deferred taxes. In addition there were cash outflows from working capital of $1.6 million, including a $4.9 million increase in inventory due to higher volumes and timing of shipments, a $2.8 million increase in other assets due to lower factoring of receivables at Tecnonet, a $1.9 million decrease in accrued liabilities due to timing of payments of accrued expenses, offset by a $0.6 million decrease in accounts receivable due to lower factoring of receivables at Tecnonet, a $4.2 million increase in accounts payable due to an increase in materials purchased, and a $3.2 million increase in deferred revenue as a result of the timing of shipments. Cash used in investing activities included $1.2 million in purchases of property, plant, and equipment. Cash provided by financing activities included additional borrowings of $12.4 million, partially offset by payments on short-term debt of $10.3 million at Tecnonet.

We periodically review our capital position and consider returning capital to stockholders through special dividends or share repurchases when cash on hand exceeds our foreseeable cash needs. We also periodically review the capital needs of our business units. We plan to invest approximately $2.4 million over the next 12 months to upgrade our infrastructure and equipment needed to support the Company's growth objectives in the Carrier Ethernet and optical transport markets among others. The nature of the Tecnonet business requires significant levels of working capital to finance the longer term receivables and the extended acceptance periods for its larger customers. The financing for its working capital needs is met through the use of factoring certain receivables. Tecnonet has minimal capital requirements and does not conduct research and development. Therefore, we do not anticipate Tecnonet's business to require significant investment to support our strategic objectives in the Italian information technology market. We believe that cash on hand and cash flows from operations and existing financing will be sufficient to satisfy current operating needs, capital expenditures, and product development and engineering requirements for at least the next 12 months. We may seek to obtain additional debt or equity financing if we believe it appropriate. We may limit our ability to use available NOLs and capital loss carryforwards if we seek financing through issuance of additional equity securities.

The following table summarizes MRV's cash position including cash and cash equivalents, restricted time deposits and our short-term debt position (dollars in thousands):

	June 30, 2014		December 31, 2013
Cash
Cash and cash equivalents	$	22,320	$	27,591
Restricted time deposits	250		249
	22,570		27,840
Short-term debt	6,370		4,320
Cash in excess of debt	$	16,200	$	23,520
Ratio of cash to debt(1)	3.5		6.4

(1) Determined by dividing total cash by total debt.

Short-term Debt

Our short-term debt is related to Tecnonet, our Italian Network Integration subsidiary. Customer accounts receivables of Tecnonet have been pledged as collateral on the related borrowings.

The following table summarizes our short-term debt (in thousands):

	June 30, 2014		December 31, 2013		Increase (decrease)
Lines of credit secured by accounts receivable	$	6,370	$	4,320	$	2,050

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The increase in short-term debt at June 30, 2014 includes additional borrowings of $12.4 million, offset by payments of $10.3 million and the impact of changes in foreign currency exchange rates.

Working Capital

The following table summarizes our working capital position (dollars in thousands).

	June 30, 2014		December 31, 2013
Current assets	$	118,751	$	117,170
Current liabilities	64,260		58,921
Working capital	$	54,491	$	58,249
Current ratio(1)	1.8		2.0

(1) Determined by dividing total current assets by total current liabilities.

Off-Balance Sheet Arrangements

We do not have transactions, arrangements or other relationships with unconsolidated entities that are reasonably likely to affect our liquidity or capital resources. We have no special purpose or limited purpose entities that provided off-balance sheet financing, liquidity or market or credit risk support, engaged in leasing, hedging, research and development services, or other relationships that expose us to liability that is not reflected on the face of the financials.

Contractual Obligations

During the quarter ended June 30, 2014, there were no material changes in our contractual obligations.

Internet Access to Our Financial Documents

We maintain a website at www.mrv.com. We make available, free of charge, either by direct access or hyperlink, our Annual Reports on Form10-K, Quarterly Reports on Form10-Q, Current Reports on Form8-K and amendments to those reports filed or furnished pursuant to Section13(a)or 15(d)of the Exchange Act as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. Our reports filed with, or furnished to, the SEC are also available directly at the SEC's website at www.sec.gov.

32

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact our Consolidated Financial Statements through adverse changes in financial market prices and rates and inflation. Our market risk exposure results primarily from fluctuations in foreign exchange and interest rates. We manage our exposure to these market risks through our regular operating and financing activities and, in certain instances, through the use of derivative financial instruments. These derivative instruments are used to manage risks of volatility in interest and foreign exchange rate movements on certain assets, liabilities or anticipated transactions and create a relationship in which gains or losses on derivative instruments are expected to counter-balance the losses or gains on the assets, liabilities or anticipated transactions exposed to such market risks. As of June 30, 2014, we did not have any such derivative financial instruments outstanding.

Interest Rates.    Our investments and short-term borrowings expose us to interest rate fluctuations. Our cash and short-term investments are subject to limited interest rate risk, and are primarily maintained in money market funds and bank deposits. Our variable-rate short-term borrowings are also subject to limited interest rate risk because of their short-term maturities. Through certain foreign offices, and from time to time, we enter into interest rate swap contracts. As of June 30, 2014, we did not have any interest rate swap contracts outstanding. The economic purpose of entering into interest rate swap contracts is to protect our variable interest debt from significant interest rate fluctuations.

Foreign Exchange Rates.    We operate on an international basis with a significant portion of our revenues and expenses transacted in currencies other than the U.S. dollar. Fluctuation in the value of these foreign currencies affects our results and will cause U.S. dollar translation of such currencies to vary from one period to another. We cannot predict the effect of exchange rate fluctuations upon future operating results. However, because we have revenues and expenses in each of these foreign currencies, the effect on our results of operations from currency fluctuations is reduced.

Through certain foreign offices, and from time to time, we enter into foreign exchange contracts in an effort to minimize the currency exchange risk related to accounts receivable or purchase commitments denominated in foreign currencies. These contracts cover periods commensurate with known or expected exposures, generally less than three months. As of June 30, 2014, we did not have any foreign exchange contracts outstanding.

Certain assets and liabilities, including certain bank accounts, accounts receivables, and accounts payables of some of our business units, exist in currencies other than the functional currency of the related business units and are sensitive to foreign currency exchange rate fluctuations. These currencies principally include the U.S. dollar, the euro, the Taiwan dollar, and the Israeli new shekel. Additionally, Tecnonet, which has a functional currency of the euro, has certain of its lines of credit denominated in U.S. dollars. When these transactions are settled in a currency other than the functional currency, we recognize a foreign currency transaction gain or loss.

When we translate the financial position and results of operations of subsidiaries with functional currencies other than the U.S. dollar, we recognize a translation gain or loss in other comprehensive income. Approximately 62.0% of our cost of sales and operating expenses are reported by these subsidiaries for the six months ended June 30,2014 and 2013. These currencies were generally stronger against the U.S. dollar for the six months ended June 30,2014 compared to the same period for 2013, so revenues and expenses in these countries translated into more dollars than they would have in the first six months of 2013. For the six months ended June 30,2014, we had approximately:

• $38.9 million in cost of goods and operating expenses recorded in euros;

• $0.5 million in cost of goods and operating expenses recorded in Taiwan dollars.

Had rates of these various foreign currencies been 10% higher relative to the U.S. dollar during the six months ended June 30, 2014, our costs would have increased to approximately:

• $42.8 million cost of goods and operating expenses recorded in euros;

• $0.6 million in cost of goods and operating expenses recorded in Taiwan dollars.

33

Fluctuations in currency exchange rates of foreign currencies have an impact on the U.S. dollar equivalent of such currencies included in cash and cash equivalents reported in our financial statements. The following table summarizes cash and cash equivalents held in various currencies and translated into U.S. dollars (in thousands).

	June 30, 2014		December 31, 2013
U.S. dollars		$16,889		$24,162
Euros	4,007		1,744
Taiwan dollars	37		63
Israeli new shekels	999		1,148
Other	388		474
Total cash and cash equivalents		$22,320		$27,591

Macro-economic uncertainties. We believe that the past few years of sustained softness in the global economy has affected our revenues and operating results, particularly in the Italian market.  When economic uncertainties increase, our customers often take a more cautious approach in their capital expenditures, resulting in order delays, slowing deployments, and lengthening sales cycles. This may lead to increased competition for projects and price pressures resulting in lower gross margins. Although we started to see an improvement in market conditions in the latter part of 2013, such market opportunities and dynamics are in their early stages, and it remains uncertain as to their current and long term effect on our business. Despite these economic uncertainties, we believe that our customers need to continue investing in their networks to meet the growth in consumer and enterprise use of high-bandwidth communications services.  We believe in our longer term market opportunities, but we are uncertain how long the downturn in economic conditions will continue and how our customers will interpret and react to market conditions.

Item 4. Controls and Procedures.

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of the end of the period covered by this Quarterly Report as a result of the material weakness related to the inadequate design of internal controls over the accounting for revenue in its Italian subsidiary, Tecnonet as further described below.

Changes in Internal Controls

During the quarter ended June 30, 2014, management identified a material weakness in internal controls over financial reporting related to the inadequate design of internal controls over the accounting for revenue in its Italian subsidiary, Tecnonet. Specifically, due to the Tecnonet personnel’s insufficient knowledge of the U.S. GAAP requirements related to maintenance of adequate documentation in support of certain revenue transactions, the Company did not have adequate controls in place to ensure that revenue was properly deferred in accordance with the U.S. GAAP requirements to enable appropriate revenue recognition. Although this deficiency did not lead to material adjustments to revenue, management has determined that deficiencies in the control processes in its accounting for deferred revenue constitute a material weakness because this control deficiency could have resulted in a material misstatement of revenue. The Company's management has initiated actions to enhance its control procedures with respect to the identification and review of deferred revenue. This remediation plan includes establishing additional documentation requirements for such sales and implementing monitoring procedures to ensure that transactions requiring revenue deferral are identified, evaluated, and properly recognized.

34

Additionally, we designed and implemented remediation measures to address the material weakness identified as of December 31, 2013 and enhance our internal control over financial reporting. The material weakness related to the inadequate design of the internal control over the accounting for deferred revenue specific to the revenue cut-off procedures. Management has implemented changes in the design of the Company's internal control over the revenue cut-off procedures and performed testing of these control changes during the first two quarters of 2014 to determine whether implemented enhanced controls operate as management has intended. Based on the testing results, management has determined that, as of June 30, 2014, our controls associated with the monthly cut-off procedures were adequate and that the implementation of the additional control procedures have fully remediated this material weakness.

Other than as described above, there has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

35

PART II - OTHER INFORMATION

Item 1.

We are subject to legal claims and litigation in the ordinary course of business, including but not limited to product liability, employment and intellectual property claims. The outcome of any such matters is currently not determinable. In addition, we were party to the litigation set forth below.

From June to August 2008, five purported stockholder derivative and securities class action lawsuits were filed in the U.S. District Court in the Central District of California and one derivative lawsuit was filed in the Superior Court of the State of California against the Company and certain of our former officers and directors. The five lawsuits filed in the Central District of California were consolidated. Claims were asserted under Section 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder. In November 2010, the judge overseeing the securities class action lawsuits gave final approval to a stipulated $10.0 million settlement agreement, which was covered by our director and officer insurance policies. The federal and state derivative lawsuits were not settled and continued to be litigated.

As of January 4, 2013, all pending litigation in the federal and state derivative actions was stayed by agreement of the parties pending final Federal Court approval of a settlement between derivative plaintiffs, individual defendants and the Company. On April 8, 2013 the Federal Court preliminarily approved a Stipulation of Settlement (the "Settlement Stipulation"), which included, among other things, (a) a release of all claims relating to the derivative litigation for the Company, the individual defendants and the plaintiffs; (b) a provision that $2.5 million in cash be paid to the Company by the Company's insurance carriers; (c) payment of attorneys' fees to plaintiffs' counsel including $500,000 in cash and 250,000 warrants to purchase the Company's Common Stock, with a five-year term and strike price of the closing price of the Company's Common Stock on the date an order of the federal District Court approving the settlement becomes final; (d) the continued payment by the Company of applicable reasonable attorneys' fees for the individual defendants. On June 6, 2013, the Federal Court granted final approval of the Settlement Stipulation and on June 13, 2013 entered Judgment dismissing the federal derivative action with prejudice. On June 24, 2013, the State Court entered a dismissal with prejudice of the state derivative action. The Company was also required to undertake certain corporate governance reform actions, all of which are either in process of implementation or have been implemented.

A majority of the costs related to the Company's and defendants' defense of these actions was paid by the Company's insurance carriers under its director and officer insurance policies, including the securities class action settlement. Insurance proceeds paid to the Company upon settlement of the derivative litigation were $1.0 million. However, MRV has paid and accrued $1.9 million in payment for services of defense counsel and other parties through December 31, 2013 above the insured amount.

In May 2014, a former customer of Tecnonet S.p.A. filed a claim in an Italian civil court alleging that Tecnonet, and its two third-party subcontractors, breached certain supply agreements with the customer, entered into between 2009 and 2011, by failing to have performed the contracted services. The plaintiff further alleges that Tecnonet was aware, at the time of entering the supply agreements, that the customer’s managing director had a conflict of interest involving the subcontractors. The plaintiff is claiming damages and restitution from Tecnonet and the subcontractors, jointly and severally, of approximately $3.0 million in the aggregate, plus costs. While we believe that Tecnonet has valid defenses to the plaintiff's claims, we cannot provide assurance that such claims will not result in any liability to Tecnonet.

From time to time, MRV has received notices from third parties alleging possible infringement of patents with respect to product features or manufacturing processes. Management believes such notices are common in the communications industry because of the large number of patents that have been filed on these subjects. The Company's policy is to discuss these notices with the parties in an effort to demonstrate that MRV's products and/or processes do not violate any patents. The Company has been involved in such discussions with Alcatel-Lucent SA, Apcon, Inc., Finisar Corporation, International Business Machines, Mediacom Broadband LLC, Ortel Communications, Ltd., Nortel Networks Corporation, Rockwell Automation, Inc. and The Lemelson Foundation in the past.

MRV and its subsidiaries have been named as a defendant in other lawsuits involving matters that the Company considers routine to the nature of its business. Management is of the opinion that the ultimate resolution of such matters will not have a material adverse effect on our business, operating results and financial condition.

36

Item 1A. Risk Factors

There have been no material changes in our risk factors from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2013. For a more complete understanding of the risks associated with an investment in our securities, you should carefully consider and evaluate all of the information in this Form 10-Q, in combination with the more detailed description of our business in our 2013 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

In August 2013, our Board of Directors approved a repurchase plan for up to $7,013,838 of the Company's Common Stock. This repurchase plan expired on May 14, 2014. No repurchases were made during the three and six months ended June 30, 2014 under this plan.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

37

Item 5  - Other Information

None.

Item 6. Exhibits

(a)    Exhibits

No.	Description
31.1	Certification of the Principal Executive Officer required by Rule 13a-14(a) of the Exchange Act (filed herewith)
31.2	Certification of the Principal Financial Officer required by Rule 13a-14(a) of the Exchange Act (filed herewith)
32.1	Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350 (furnished herewith)
32.2	Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350 (furnished herewith)
101.INS	XBRL Instance Document (filed herewith)
101.SCH	XBRL Taxonomy Extension Schema Document (filed herewith)
101.CAL	XBRL Taxonomy Calculation Linkbase Document (filed herewith)
101.LAB	XBRL Taxonomy Label Linkbase Document (filed herewith)
101.PRE	XBRL Taxonomy Presentation Linkbase Document (filed herewith)
101.DEF	XBRL Taxonomy Extension Definition Document (filed herewith)

38

SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on August 18, 2014.

MRV COMMUNICATIONS, INC.

By: /s/ David S. Stehlin

David S. Stehlin

Chief Executive Officer

Principal Executive Officer

By: /s/ Stephen A. Garcia

Stephen A. Garcia

Chief Financial Officer

Principal Financial Officer

39

EX-31.1

Exhibit 31.1

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

REQUIRED BY RULE 13a-14(a) OF THE EXCHANGE ACT

I, David S. Stehlin, certify that:

1. I have reviewed this Quarterly Report of MRV Communications, Inc. on Form 10-Q for the period ended June 30, 2014;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and 

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 18, 2014
/s/ David S. Stehlin
David S. Stehlin
Chief Executive Officer
(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

REQUIRED BY RULE 13a-14(a) OF THE EXCHANGE ACT

I, Stephen A. Garcia, certify that:

1. I have reviewed this Quarterly Report of MRV Communications, Inc. on Form 10-Q for the period ended June 30, 2014;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 18, 2014
/s/ Stephen A. Garcia
Stephen A. Garcia
Chief Financial Officer
(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATIONS OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

18 U.S.C. SECTION 1350

In connection with the Quarterly Report of MRV Communications, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David S. Stehlin, Chief Executive Officer of the Company certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	August 18, 2014	/s/ David S. Stehlin
		David S. Stehlin
		Chief Executive Officer
		(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350

In connection with the Quarterly Report of MRV Communications, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen A. Garcia, Chief Financial Officer of the Company certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	August 18, 2014	/s/ Stephen A. Garcia
		Stephen A. Garcia
		Chief Financial Officer
		(Principal Financial Officer)

XML

Share-Based Compensation (Narrative) (Details) (USD $) In Millions, except Share data, unless otherwise specified	6 Months Ended	3 Months Ended
	Jun. 30, 2014	Jun. 30, 2014 Stock Options [Member]	Mar. 31, 2014 Stock Options [Member]	Jun. 30, 2013 Stock Options [Member]	Mar. 31, 2013 Stock Options [Member]	Jun. 30, 2014 Restricted Stock [Member]	Mar. 31, 2014 Restricted Stock [Member]	Jun. 30, 2013 Restricted Stock [Member]	Mar. 31, 2013 Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options, grants during period (in shares)		173,722	0	80,242	0
Stock options, weighted-average fair value, grants during the period (dollars per share)		$ 7.16		$ 4.89
Restricted stock, grants during period (in shares)						85,907	0	90,387	0
Restricted stock, weighted-average fair value, grants during the period (dollars per share)						$ 14.40		$ 9.99
Total compensation cost not yet recognized	$ 1.9
Total compensation cost not yet recognized, period for recognition	2 years 4 months 24 days

XML

Accounts Receivable Factoring (Narrative) (Details) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014 USD ($)	Jun. 30, 2013 USD ($)	Jun. 30, 2014 USD ($)	Jun. 30, 2013 USD ($)	Jun. 30, 2014 EUR (€)	Dec. 31, 2013 USD ($)
Receivables [Abstract]
Amount of factoring permitted per credit facility agreements	$ 13.7		$ 13.7		€ 10.0
Accounts receivables sold	12.7		12.7			17.2
Outstanding balances on accounts receivable	10.0		10.0			7.7
Related losses on sale	$ (0.07)	$ (0.05)	$ (0.11)	$ (0.13)

XML

Segment Reporting and Geographic Information (Balance Sheet and Statement of Cash Flow Information) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Segment Reporting Information [Line Items]
Additions to Fixed Assets	$ 1,176	$ 2,116
Assets	129,139		127,947
Network Equipment [Member]
Segment Reporting Information [Line Items]
Additions to Fixed Assets	1,019	2,064
Assets	44,798		48,955
Network Integration [Member]
Segment Reporting Information [Line Items]
Additions to Fixed Assets	74	46
Assets	65,288		54,625
Corporate [Member]
Segment Reporting Information [Line Items]
Additions to Fixed Assets	83	6
Corporate Unallocated and Intersegment Adjustments [Member]
Segment Reporting Information [Line Items]
Assets	$ 19,053		$ 24,367

XML

Credit Risk (Changes in the Allowance for Doubtful Accounts) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Allowance for Doubtful Accounts Receivable [Roll Forward]
Balance at beginning of period	$ 2,183
Charged (reversed) to expense	(43)	250
Write-offs, net of amounts recovered	2
Foreign currency translation adjustment	(9)
Balance at end of period	$ 2,133

XML

Inventories (Tables)

6 Months Ended

Jun. 30, 2014

Inventory Disclosure [Abstract]

Schedule of Inventory, Current

Inventories, net of reserves, consisted of the following (in thousands):

	June 30, 2014		December 31, 2013
Raw materials	$	4,374	$	5,723
Work-in process	1,381		1,121
Finished goods	22,730		16,137
Total	$	28,485	$	22,981

XML

Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Income Tax Disclosure [Abstract]
Loss before provision for income taxes	$ (1,586)	$ (878)	$ (5,552)	$ (5,006)
Provision for income taxes	$ 681	$ 115	$ 932	$ 421
Effective tax rate	(43.00%)	(13.00%)	(17.00%)	(8.00%)

XML

Segment Reporting and Geographic Information (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended			12 Months Ended	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014 segments	Jun. 30, 2013	Jun. 30, 2014 Network Integration [Member]	Jun. 30, 2013 Network Integration [Member]	Jun. 30, 2014 Network Integration [Member]	Jun. 30, 2013 Network Integration [Member]	Jun. 30, 2014 Network Integration [Member] Major Customer, One [Member]	Jun. 30, 2013 Network Integration [Member] Major Customer, One [Member]	Jun. 30, 2014 Network Integration [Member] Major Customer, One [Member]	Jun. 30, 2013 Network Integration [Member] Major Customer, One [Member]	Jun. 30, 2014 Network Integration [Member] Major Customer, Two [Member]	Jun. 30, 2013 Network Integration [Member] Major Customer, Two [Member]	Jun. 30, 2014 Network Integration [Member] Major Customer, Two [Member]	Jun. 30, 2013 Network Integration [Member] Major Customer, Two [Member]	Jun. 30, 2014 Network Integration [Member] Customer Concentration Risk [Member] Revenue [Member] Major Customer, One [Member]	Jun. 30, 2013 Network Integration [Member] Customer Concentration Risk [Member] Revenue [Member] Major Customer, One [Member]	Jun. 30, 2014 Network Integration [Member] Customer Concentration Risk [Member] Revenue [Member] Major Customer, One [Member]	Jun. 30, 2013 Network Integration [Member] Customer Concentration Risk [Member] Revenue [Member] Major Customer, One [Member]	Jun. 30, 2014 Network Integration [Member] Customer Concentration Risk [Member] Revenue [Member] Major Customer, Two [Member]	Jun. 30, 2013 Network Integration [Member] Customer Concentration Risk [Member] Revenue [Member] Major Customer, Two [Member]	Jun. 30, 2014 Network Integration [Member] Customer Concentration Risk [Member] Revenue [Member] Major Customer, Two [Member]	Jun. 30, 2013 Network Integration [Member] Customer Concentration Risk [Member] Revenue [Member] Major Customer, Two [Member]	Jun. 30, 2014 Network Integration [Member] Customer Concentration Risk [Member] Accounts Receivable [Member] Major Customer, One [Member]	Dec. 31, 2013 Network Integration [Member] Customer Concentration Risk [Member] Accounts Receivable [Member] Major Customer, One [Member]	Jun. 30, 2014 Network Integration [Member] Customer Concentration Risk [Member] Accounts Receivable [Member] Major Customer, Two [Member]	Dec. 31, 2013 Network Integration [Member] Customer Concentration Risk [Member] Accounts Receivable [Member] Major Customer, Two [Member]
Segment Reporting Information [Line Items]
Number of Business Segments			2
Revenue	$ 43,124	$ 38,175	$ 85,442	$ 77,080	$ 21,355	$ 17,135	$ 41,408	$ 35,117	$ 12,600	$ 10,800	$ 23,600	$ 22,200	$ 7,700	$ 4,100	$ 14,200	$ 9,000
Concentration percentage																	29.00%	29.00%	28.00%	29.00%	18.00%	11.00%	17.00%	12.00%	25.00%	22.00%	28.00%	27.00%

XML

Product Warranty (Change in Product Warranty Liability) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014
Movement in Standard and Extended Product Warranty, Increase (Decrease) [Roll Forward]
Beginning balance	$ 578
Cost of warranty claims	(18)
Accruals for product warranties	43
Total	$ 603

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Litigation (Narrative) (Details) (USD $)	0 Months Ended	6 Months Ended	12 Months Ended		1 Months Ended	12 Months Ended	3 Months Ended		1 Months Ended
	Apr. 08, 2013	Jun. 30, 2014	Dec. 31, 2013	Feb. 18, 2014	Nov. 30, 2010 Purported Stockholder Derivative and Securities Class Action Lawsuits [Member]	Dec. 31, 2013 Purported Stockholder Derivative and Securities Class Action Lawsuits [Member]	Aug. 31, 2008 U. S. District Court in the Central District of California [Member] Purported Stockholder Derivative and Securities Class Action Lawsuits [Member] claims	Aug. 31, 2008 Superior Court of the State of California [Member] Purported Stockholder Derivative and Securities Class Action Lawsuits [Member] claims	May 31, 2014 Pending Litigation [Member] Italian Civil Court [Member] Purported Breach of Supply Agreements Claim [Member] subcontractor
Loss Contingencies [Line Items]
Purported stockholder derivative and securities class action lawsuits							5	1
Litigation settlement, amount					$ 10,000,000.0
Stipulation of settlement, insurance carriers payment	2,500,000.0
Stipulation of settlement, payment to plaintiff	500,000
Stipulation of settlement, payment to plaintiff, warrants	250,000			250,000
Stipulation of settlement, payment to plaintiff, warrants, term	5 years	5 years
Insurance proceeds related to litigation settlement						1,000,000
Litigation settlement, expense			1,900,000
Loss contingency, number of third-party subcontractors									2
Loss contingency, value of damages sought, plus costs									$ 3,000,000

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Fair Value Measurement

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurement

Fair Value Measurement

MRV's financial instruments, including cash and cash equivalents, restricted time deposits, accounts receivable, other receivables, other assets, accounts payable, accrued liabilities and short-term debt obligations, are carried at cost, which approximates their fair value due to their short term nature.

ASC 820-10Fair Value Measurementsdefines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820-10 establishes a three-level hierarchy that prioritizes the use of observable inputs. The fair value hierarchy is divided into three levels based on the source of inputs as follows: Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access; Level 2 - Valuations for which all significant inputs are observable, either directly or indirectly, other than level 1 inputs for similar assets and liabilities; Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

As of June 30, 2014 and December 31, 2013, the Company had cash equivalents consisting of money market funds of $11.6 million and $14.0 million, respectively that were classified as Level 1 investments and were quoted at market price. Cash equivalents are included in the consolidated balance sheets as follows (in thousands):

	Cost		Fair Value
December 31, 2013	$	14,001	$	14,001
June 30, 2014	$	11,604	$	11,604

During 2014 the Company updated the estimated fair value as of the issuance date of 250,000 warrants that were issued to plaintiffs' counsel on February 18, 2014 in a litigation matter originally recorded as a liability in 2013. In calculating the fair value, the Company used the Black Scholes option pricing model with level 2 inputs including a volatility of 41% based on the Company's historical quoted prices and peer company data, the risk free interest rate of 1.5% and the 5 years expected term of the warrants. Volatility based on both the Company's historical quoted prices and peer company data was used as the Company's stock is thinly traded. The resulting fair value was $6.59 per warrant. In relation to this revaluation, the Company recorded expense of $0.4 million for the three months ended March 31, 2014. No additional expense was recorded in the three months ended June 30, 2014. Upon issuance and revaluation, the warrants were removed from liabilities and recorded as a component of additional paid in capital.

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Segment Reporting and Geographic Information (Revenues by Segment) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Segment Reporting, Revenue Reconciling Item [Line Items]
Revenue	$ 43,124	$ 38,175	$ 85,442	$ 77,080
Before intersegment adjustments [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Revenue	43,188	38,235	85,560	77,163
Network Equipment [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Revenue	21,833	21,100	44,152	42,046
Network Integration [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Revenue	21,355	17,135	41,408	35,117
Intersegment adjustments [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Revenue	$ (64)	$ (60)	$ (118)	$ (83)

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Income Taxes (Tables)

6 Months Ended

Jun. 30, 2014

Income Tax Disclosure [Abstract]

Details of Income Taxes

The following table provides details of income taxes (in thousands, except percentages):

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Loss before provision for income taxes	$	(1,586	)	$	(878	)	$	(5,552	)	$	(5,006	)
Provision for income taxes	681			115			932			421
Effective tax rate	(43		)%	(13		)%	(17		)%	(8		)%

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Segment Reporting and Geographic Information (Tables)

6 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

Reconciliation of Revenue from Segments to Consolidated

The following table summarizes revenues by segment, including intersegment revenues (in thousands):

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2014			2013			2014			2013
Network Equipment	$	21,833		$	21,100		$	44,152		$	42,046
Network Integration	21,355			17,135			41,408			35,117
Before intersegment adjustments	43,188			38,235			85,560			77,163
Intersegment adjustments	(64		)	(60		)	(118		)	(83		)
Total	$	43,124		$	38,175		$	85,442		$	77,080

Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas

The following table summarizes external revenue by geographic region (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
United States	$	13,555	$	13,676	$	26,411	$	25,801
Americas (Excluding the U.S.)	126		855		682		2,480
Europe	26,522		21,869		53,101		45,290
Asia Pacific	2,921		1,775		5,248		3,509
Total	$	43,124	$	38,175	$	85,442	$	77,080

Revenue from external customers attributed to Italy totaled $21.4 million and $17.3 million for the three months ended June 30, 2014 and June 30, 2013 respectively. Revenue from external customers attributed to Italy totaled $41.8 million and $35.4 million for the six months endedJune 30, 2014 and June 30, 2013 respectively.

The following table summarizes long-lived assets, consisting of property and equipment, by geographic region (in thousands):

	June 30, 2014		December 31, 2013
Americas	$	3,199	$	3,326
Europe	2,017		2,194
Asia Pacific	32		35
Total	$	5,248	$	5,555

Reconciliation of Operating Profit (Loss) from Segments to Consolidated

The following table provides selected Statement of Operations information by business segment (in thousands):

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Gross profit
Network Equipment	$	11,185		$	11,183		$	21,944		$	21,949
Network Integration	3,598			2,187			6,088			4,444
Total before intersegment adjustments	14,783			13,370			28,032			26,393
Corporate unallocated and intersegment adjustments(1)	(1		)	2			1			6
Total	$	14,782		$	13,372		$	28,033		$	26,399
Depreciation expense
Network Equipment	$	433		$	283		$	969		$	583
Network Integration	51			52			100			105
Corporate	20			48			59			96
Total	$	504		$	383		$	1,128		$	784
Operating income (loss)
Network Equipment	$	(1,503	)	$	(296	)	$	(4,343	)	$	(1,415	)
Network Integration	1,704			675			2,550			1,366
Total before intersegment adjustments	201			379			(1,793		)	(49		)
Corporate unallocated operating loss and adjustments (1)	(1,327		)	(914		)	(3,182		)	(4,499		)
Total	$	(1,126	)	$	(535	)	$	(4,975	)	$	(4,548	)

(1) Adjustments reflect the elimination of intersegment revenue and profit in inventory.

Reconciliation of Assets and Other Reconciling Items from Segment to Consolidated

The following tables provide selected Balance Sheet and Statement of Cash Flow information by business segment (in thousands):

	Six months ended
	June 30,
	2014		2013
Additions to Fixed Assets
Network Equipment	$	1,019	$	2,064
Network Integration	74		46
Corporate	83		6
Total	$	1,176	$	2,116

	June 30, 2014		December 31, 2013
Total Assets
Network Equipment	$	44,798	$	48,955
Network Integration	65,288		54,625
Corporate and intersegment eliminations	19,053		24,367
Total	$	129,139	$	127,947

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Segment Reporting and Geographic Information (External Revenue and Long-Lived Assets by Geographic Region) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 43,124	$ 38,175	$ 85,442	$ 77,080
Long-Lived Assets	5,248		5,248		5,555
Americas
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-Lived Assets	3,199		3,199		3,326
United States
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	13,555	13,676	26,411	25,801
Americas (Excluding the U.S.)
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	126	855	682	2,480
Europe
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	26,522	21,869	53,101	45,290
Long-Lived Assets	2,017		2,017		2,194
Italy
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	21,400	17,300	41,800	35,400
Asia Pacific
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	2,921	1,775	5,248	3,509
Long-Lived Assets	$ 32		$ 32		$ 35

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Organization and Summary of significant accounting policies (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014 segments	Jun. 30, 2013	Dec. 31, 2013
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of Business Segments			2
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Revenue	$ (43,124)	$ (38,175)	$ (85,442)	$ (77,080)
Net loss			6,484	5,427
Cost of sales	(28,342)	(24,803)	(57,409)	(50,681)
Gross profit	(14,782)	(13,372)	(28,033)	(26,399)
Provision for income taxes	(681)	(115)	(932)	(421)
Inventories	28,485		28,485		22,981
Deferred revenue			3,230	973
Deferred income taxes	1,144		1,144		1,219
Accumulated deficit	1,214,821		1,214,821		1,208,337
Restatement Adjustment [Member]
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Revenue	2,000
Net loss	100		100
Cost of sales	1,800
Gross profit	200
Provision for income taxes	100
Inventories	1,900		1,900
Deferred revenue	2,000
Deferred income taxes	100		100
Accumulated deficit	$ 100		$ 100

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Fair Value Measurement (Narrative) (Details) (USD $)	0 Months Ended	3 Months Ended	6 Months Ended
	Apr. 08, 2013	Jun. 30, 2014	Jun. 30, 2014	Feb. 18, 2014	Jun. 30, 2014 Money Market Funds [Member] Fair Value, Inputs, Level 1 [Member]	Dec. 31, 2013 Money Market Funds [Member] Fair Value, Inputs, Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash Equivalents					$ 11,604,000	$ 14,001,000
Stipulation of settlement, payment to plaintiff, warrants	250,000			250,000
Expected volatility rate			41.00%
Risk free interest rate			1.50%
Stipulation of settlement, payment to plaintiff, warrants, term	5 years		5 years
Warrants, fair value per share		6.59	6.59
Liabilities, Fair Value Adjustment		$ 400,000	$ 400,000

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Cash and Cash Equivalents and Restricted Time Deposits

6 Months Ended

Jun. 30, 2014

Cash and Cash Equivalents [Abstract]

Cash and Cash Equivalents and Restricted Time Deposits

Cash and Cash Equivalents and Restricted Time Deposits

MRV treats highly liquid investments with an original maturity of 90 days or less as cash equivalents. Investments with maturities of less than one year are considered short-term and are included on the balance sheet in restricted time deposits. MRV maintains cash balances and investments in qualified financial institutions, and at various times such amounts are in excess of federal insured limits.

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Fair Value Measurement (Cash and Cash Equivalents) (Details) (Money Market Funds [Member], Fair Value, Inputs, Level 1 [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash Equivalents, Beginning Balance	$ 11,604	$ 14,001
Cash Equivalents, Ending Balance	11,604	14,001
Cost [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash Equivalents, Beginning Balance	11,604	14,001
Cash Equivalents, Ending Balance	$ 11,604	$ 14,001

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Share-Based Compensation (Share-Based Compensation Expense) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2014		Jun. 30, 2013		Jun. 30, 2014		Jun. 30, 2013
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Allocated Share-based Compensation Expense	$ 328	[1]	$ 83	[1]	$ 475	[1]	$ 302	[1]
Cost of Goods Sold [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Allocated Share-based Compensation Expense	33		26		53		43
Product Development and Engineering [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Allocated Share-based Compensation Expense	50		15		73		25
Selling, General and Administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Allocated Share-based Compensation Expense	$ 245		$ 42		$ 349		$ 234

[1] Income tax benefits realized from stock option exercises and similar awards were immaterial in both periods.

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Condensed Consolidated Statements of Operations (unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Revenue:
Product revenue	$ 30,671	$ 26,432	$ 62,215	$ 54,504
Service revenue	12,453	11,743	23,227	22,576
Total revenue	43,124	38,175	85,442	77,080
Cost of sales	28,342	24,803	57,409	50,681
Gross profit	14,782	13,372	28,033	26,399
Operating expenses:
Product development and engineering	5,392	4,454	10,970	9,102
Selling, general and administrative	10,516	9,453	22,038	21,845
Total operating expenses	15,908	13,907	33,008	30,947
Operating loss	(1,126)	(535)	(4,975)	(4,548)
Interest expense	(40)	(241)	(190)	(373)
Other expense, net	(420)	(102)	(387)	(85)
Loss before provision for income taxes	(1,586)	(878)	(5,552)	(5,006)
Provision for income taxes	681	115	932	421
Net Loss	$ (2,267)	$ (993)	$ (6,484)	$ (5,427)
Net loss per share — basic (in usd per share)	$ (0.31)	$ (0.13)	$ (0.89)	$ (0.72)
Net loss per share — diluted (in usd per share)	$ (0.31)	$ (0.13)	$ (0.89)	$ (0.72)
Weighted average number of shares:
Basic (in shares)	7,360	7,585	7,322	7,570
Diluted (in shares)	7,360	7,585	7,322	7,570

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Segment Reporting and Geographic Information (Statement of Operations Information by Business Segment) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2014		Jun. 30, 2013		Jun. 30, 2014		Jun. 30, 2013
Gross profit
Gross Profit	$ 14,782		$ 13,372		$ 28,033		$ 26,399
Depreciation expense
Depreciation expense	504		383		1,128		784
Operating income (loss)
Operating Income (Loss)	(1,126)		(535)		(4,975)		(4,548)
Total before intersegment adjustments [Member]
Gross profit
Gross Profit	14,783		13,370		28,032		26,393
Operating income (loss)
Operating Income (Loss)	201		379		(1,793)		(49)
Network Equipment [Member]
Gross profit
Gross Profit	11,185		11,183		21,944		21,949
Depreciation expense
Depreciation expense	433		283		969		583
Operating income (loss)
Operating Income (Loss)	(1,503)		(296)		(4,343)		(1,415)
Network Integration [Member]
Gross profit
Gross Profit	3,598		2,187		6,088		4,444
Depreciation expense
Depreciation expense	51		52		100		105
Operating income (loss)
Operating Income (Loss)	1,704		675		2,550		1,366
Corporate Unallocated and Intersegment Adjustments [Member]
Gross profit
Gross Profit	(1)	[1]	2	[1]	1	[1]	6	[1]
Operating income (loss)
Operating Income (Loss)	(1,327)	[1]	(914)	[1]	(3,182)	[1]	(4,499)	[1]
Corporate [Member]
Depreciation expense
Depreciation expense	$ 20		$ 48		$ 59		$ 96

[1] djustments reflect the elimination of intersegment revenue and profit in inventory.

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Condensed Consolidated Statements of Cash Flows (unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash flows from operating activities:
Net loss	$ (6,484)	$ (5,427)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	1,128	784
Share-based compensation expense	475	302
Provision for doubtful accounts	(43)	250
Deferred income taxes	365	(164)
Loss on disposition of property and equipment	0	17
Changes in operating assets and liabilities:
Accounts receivable	551	(1,593)
Inventories	(4,902)	2,512
Other assets	(2,773)	3,281
Accounts payable	4,163	(1,818)
Accrued liabilities	(1,857)	1,916
Deferred revenue	3,230	973
Other current liabilities	0	172
Net cash (used in) provided by operating activities	(6,147)	1,205
Cash flows from investing activities:
Purchases of property and equipment	(1,176)	(2,116)
Release of restricted time deposits	(1)	(4)
Net cash used in investing activities	(1,177)	(2,120)
Cash flows from financing activities:
Shares repurchased for tax withholdings on vesting of restricted stock awards	(54)	0
Purchase of treasury shares	0	(1,356)
Borrowings on short-term debt	12,392	3,102
Payments on short-term debt	(10,297)	(5,535)
Net cash provided by (used in) financing activities	2,041	(3,789)
Effect of exchange rate changes on cash and cash equivalents	12	43
Net decrease in cash and cash equivalents	(5,271)	(4,661)
Cash and cash equivalents, beginning of period	27,591	40,609
Cash and cash equivalents, end of period	22,320	35,948
Supplemental disclosure of cash flow information:
Cash paid during period for interest	145	169
Cash paid during period for income taxes	$ 625	$ 0

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Intangible Asset (Narrative) (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Goodwill and Intangible Assets Disclosure [Abstract]
Intangible assets	$ 762,000		$ 762,000		$ 873,000
Amortization of intangible assets	$ 0	$ 0	$ 0	$ 0
Estimated useful life of finite-lived intangible assets			5 years

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Organization and Summary of significant accounting policies (Policies)

6 Months Ended

Jun. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

The consolidated financial statements include the accounts of MRV and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. MRV consolidates the financial results of less than majority-owned subsidiaries when it has effective control, voting control, or has provided the entity's working capital. When investment by others in these enterprises reduces the Company's voting control below 50%, MRV discontinues consolidation and uses the cost or equity method of accounting for these investments, unless otherwise required.

The consolidated financial statements included herein have been prepared by MRV, and are unaudited, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations although MRV believes that the disclosures are adequate to make the information presented not misleading. The information included in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (this “Form 10-Q”) should be read in conjunction with the Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Form 10-K”) filed with the SEC.

Restricted Time Deposits

Restricted time deposits represent investments that are restricted as to withdrawal. Restricted time deposits generally secure standby letters of credit, bank lines of credit, or bank loans. Investments in and releases of restricted time deposits are included in investing activities on the Company's Statement of Cash Flows unless the time deposits relate to an underlying bank loan and will be used to repay the loan, in which case the related cash flows are treated as financing activities.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In May 2014, the FASB issued Accounting Stands Update No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," ("ASU 2014-09"). ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is not permitted. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. MRV is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and footnote disclosures.

Allowance for Doubtful Accounts Policy

Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash and cash equivalents placed with high credit quality institutions and accounts receivable due from customers. MRV evaluates the collectability of accounts receivable based on a combination of factors. If MRV becomes aware of a customer's inability to meet its financial obligations after a sale has occurred, the Company records an allowance to reduce the net receivable to the amount that it reasonably believes to be collectable from the customer. For all other customers, the Company records allowances for doubtful accounts based on the length of time the receivables are past due, the current business environment, and historical experience. If the financial conditions of MRV's customers were to deteriorate or if economic conditions worsen, additional allowances may be required in the future. Accounts receivable are charged off at the point they are considered uncollectible.

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Product Warranty (Narrative) (Details) (USD $) In Thousands, unless otherwise specified			6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013	Jun. 30, 2014 Minimum [Member]	Jun. 30, 2014 Maximum [Member]
Product Warranties Disclosures [Abstract]
Product warranty liability	$ 603	$ 578
Standard Product Warranty Period [Line Items]
Standard product warranty period			90 days	3 years

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Credit Risk (Tables)

6 Months Ended

Jun. 30, 2014

Receivables [Abstract]

Schedule of Allowance for Doubtful Accounts

The following table summarizes the changes in the allowance for doubtful accounts during the six months endedJune 30, 2014(in thousands):

	Six months ended
	June 30, 2014
Balance at beginning of period	$	2,183
Charged (reversed) to expense	(43		)
Write-offs, net of amounts recovered	2
Foreign currency translation adjustment	(9		)
Balance at end of period	$	2,133

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Organization and Summary of significant accounting policies

6 Months Ended

Jun. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Summary of significant accounting policies

Organization and Summary of significant accounting policies

Organization and nature of operations

MRV Communications, Inc. ("MRV" or the "Company"), a Delaware corporation, is a global supplier of communications solutions to telecommunications service providers, enterprises and governments throughout the world. MRV's products enable customers to provide high-bandwidth data and video services and mobile communications services more efficiently and cost effectively. MRV markets and sells its products worldwide, through a variety of channels, which include a dedicated direct sales force, manufacturers' representatives, value-added-resellers, distributors and systems integrators. MRV conducts its business along two principal segments: the Network Equipment segment and the Network Integration segment. MRV's Network Equipment segment designs, manufactures, sells, and services equipment used by commercial customers, governments, and telecommunications service providers. Products include switches, optical transport platforms, physical layer products and out-of-band management products, and specialized networking products. The Italian Network Integration segment provides network system design, integration and distribution services that include products manufactured by third-party vendors.

Basis of Presentation

The consolidated financial statements include the accounts of MRV and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. MRV consolidates the financial results of less than majority-owned subsidiaries when it has effective control, voting control, or has provided the entity's working capital. When investment by others in these enterprises reduces the Company's voting control below 50%, MRV discontinues consolidation and uses the cost or equity method of accounting for these investments, unless otherwise required.

The consolidated financial statements included herein have been prepared by MRV, and are unaudited, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations although MRV believes that the disclosures are adequate to make the information presented not misleading. The information included in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (this “Form 10-Q”) should be read in conjunction with the Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Form 10-K”) filed with the SEC.

Restricted time deposits represent investments that are restricted as to withdrawal. Restricted time deposits generally secure standby letters of credit, bank lines of credit, or bank loans. Investments in and releases of restricted time deposits are included in investing activities on the Company's Statement of Cash Flows unless the time deposits relate to an underlying bank loan and will be used to repay the loan, in which case the related cash flows are treated as financing activities.

In the opinion of MRV's management, these unaudited statements contain all adjustments, which include normal recurring adjustments, necessary to present fairly the financial position of MRV as of June 30, 2014, and the results of its operations and comprehensive income (loss) for the three and six months endedJune 30, 2014 and 2013, and its cash flows for the six months endedJune 30, 2014 and 2013. The results reported in these financial statements should not be regarded as necessarily indicative of results that may be expected for the full year or any future periods.

Correction of an Immaterial Error

During the quarter ended June 30, 2014, the Company made an out-of-period adjustment to defer previously recognized revenue of $2 million, which resulted in an increase to after-tax net loss of $0.1 million for the three and six months ended June 30, 2014. The Company reduced cost of sales by $1.8 million, gross profit by $0.2 million and the provision for income taxes by $0.1 million related to prior periods to remove the effect of the previously recognized revenue. These out of period adjustments also resulted in an increase in Inventory of $1.9 million, deferred revenue of $2 million and deferred income taxes, net of current portion by $0.1 million. The impact on accumulated deficit and stockholder’s equity was a reduction by $0.1 million. The Company evaluated the effects of this adjustment on the Company’s consolidated financial statements and concluded that the error was not material to any prior annual or interim periods. Individually and in the aggregate, these out-of-period adjustments did not have a material impact on the Company’s consolidated financial statements for the quarter and year to date periods ended June 30, 2014.

Recently Issued Accounting Standards

In May 2014, the FASB issued Accounting Stands Update No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," ("ASU 2014-09"). ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is not permitted. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. MRV is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and footnote disclosures.

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Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Statement of Comprehensive Income [Abstract]
Net Loss	$ (2,267)	$ (993)	$ (6,484)	$ (5,427)
Other comprehensive loss, net of tax
Foreign currency translation gain (loss)	(123)	440	(166)	(395)
Total comprehensive loss	$ (2,390)	$ (553)	$ (6,650)	$ (5,822)

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Indemnification Obligations

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Indemnification Obligations

Indemnification Obligations

Our agreements for the sale of our Source Photonics, CES, Interdata and Alcadon businesses include customary indemnification obligations running to the respective buyers.

We have agreements whereby our officers and directors are indemnified for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we retain directors and officers insurance that reduces our exposure and enables us to recover portions of amounts paid. As a result of our insurance coverage, we believe the estimated fair value of these indemnification agreements is minimal. Accordingly, no liabilities have been recorded for these agreements as of June 30, 2014 and December 31, 2013.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 15, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	MRV COMMUNICATIONS INC
Entity Central Index Key	0000887969
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Jun. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding		7,365,381

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Litigation

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Litigation

Litigation

We are subject to legal claims and litigation in the ordinary course of business, including but not limited to product liability, employment and intellectual property claims. The outcome of any such matters is currently not determinable. In addition, we were party to the litigation set forth below.

From June to August 2008, five purported stockholder derivative and securities class action lawsuits were filed in the U.S. District Court in the Central District of California and one derivative lawsuit was filed in the Superior Court of the State of California against the Company and certain of our former officers and directors. The five lawsuits filed in the Central District of California were consolidated. Claims were asserted under Section 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder. In November 2010, the judge overseeing the securities class action lawsuits gave final approval to a stipulated $10.0 million settlement agreement, which was covered by our director and officer insurance policies. The federal and state derivative lawsuits were not settled.

As of January 4, 2013, all pending litigation in the federal and state derivative actions was stayed by agreement of the parties pending final Federal Court approval of a settlement between derivative plaintiffs, individual defendants and the Company. On April 8, 2013 the Federal Court preliminarily approved a Stipulation of Settlement (the "Settlement Stipulation"), which included, among other things, (a) a release of all claims relating to the derivative litigation for the Company, the individual defendants and the plaintiffs; (b) a provision that $2.5 million in cash be paid to the Company by the Company's insurance carriers; (c) payment of attorneys' fees to plaintiffs' counsel including $500,000 in cash and 250,000 warrants to purchase the Company's Common Stock, with a five-year term and strike price of the closing price of the Company's Common Stock on the date an order of the federal District Court approving the settlement becomes final; (d) the continued payment by the Company of applicable reasonable attorneys' fees for the individual defendants. On June 6, 2013, the Federal Court granted final approval of the Settlement Stipulation and on June 13, 2013 entered Judgment dismissing the federal derivative action with prejudice. On June 24, 2013, the State Court entered a dismissal with prejudice of the state derivative action. The Company was also required to undertake certain corporate governance reform actions, all of which are either in process of implementation or have been implemented.

A majority of the costs related to the Company's and defendants' defense of these actions was paid by the Company's insurance carriers under its director and officer insurance policies, including the securities class action settlement. Insurance proceeds paid to the Company upon settlement of the derivative litigation were $1.0 million. However, MRV has paid and accrued $1.9 million in payment for services of defense counsel and other parties through December 31, 2013 above the insured amount.

In May 2014, a former customer of Tecnonet S.p.A. filed a claim in an Italian civil court alleging that Tecnonet, and its two third-party subcontractors, breached certain supply agreements with the customer, entered into between 2009 and 2011, by failing to have performed the contracted services. The plaintiff further alleges that Tecnonet was aware, at the time of entering the supply agreements, that the customer’s managing director had a conflict of interest involving the subcontractors. The plaintiff is claiming damages and restitution from Tecnonet and the subcontractors, jointly and severally, of approximately $3.0 million in the aggregate, plus costs. While we believe that Tecnonet has valid defenses to the plaintiff's claims, we cannot provide assurance that such claims will not result in any liability to Tecnonet.

From time to time, MRV has received notices from third parties alleging possible infringement of patents with respect to product features or manufacturing processes. Management believes such notices are common in the communications industry because of the large number of patents that have been filed on these subjects. The Company's policy is to discuss these notices with the parties in an effort to demonstrate that MRV's products and/or processes do not violate any patents. The Company has been involved in such discussions with Alcatel-Lucent SA, Apcon, Inc., Finisar Corporation, International Business Machines, Mediacom Broadband LLC, Ortel Communications, Ltd., Nortel Networks Corporation, Rockwell Automation, Inc. and The Lemelson Foundation in the past.

MRV and its subsidiaries have been named as a defendant in other lawsuits involving matters that MRV considers routine to the nature of its business. MRV is of the opinion that the ultimate resolution of such matters will not have a material adverse effect on our business, operating results and financial condition.

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Condensed Consolidated Balance Sheets (unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 22,320	$ 27,591
Restricted time deposits	250	249
Accounts receivable, net	49,122	49,990
Other receivables	10,353	8,220
Inventories	28,485	22,981
Income taxes receivable	814	1,256
Deferred income taxes	1,144	1,219
Other current assets	6,263	5,664
Total current assets	118,751	117,170
Property and equipment, net	5,248	5,555
Deferred income taxes, net of current portion	3,801	3,694
Intangible asset, net	762	873
Other assets	577	655
Total assets	129,139	127,947
Current liabilities:
Short-term debt	6,370	4,320
Deferred consideration payable	233	233
Accounts payable	27,990	23,991
Accrued liabilities	15,541	19,463
Deferred revenue	13,755	10,557
Other current liabilities	371	357
Total current liabilities	64,260	58,921
Other long-term liabilities	5,509	5,236
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.01 par value: Authorized — 1,000 shares; no shares issued or outstanding	0	0
Common Stock, $0.0017 par value: Authorized---16,000 shares; Issued---8,222 shares in 2014 and 8,143 shares in 2013; Outstanding — 7,365 shares in 2014 and 7,286 shares in 2013	270	270
Additional paid-in capital	1,284,113	1,281,883
Accumulated deficit	(1,214,821)	(1,208,337)
Treasury stock — 856 shares in 2014 and 856 shares in 2013	(10,412)	(10,412)
Accumulated other comprehensive income	220	386
Total stockholders' equity	59,370	63,790
Total liabilities and stockholders' equity	$ 129,139	$ 127,947

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Intangible Asset

6 Months Ended

Jun. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Asset

Intangible Asset

The balance of the intangible asset was $0.8 million as of June 30, 2014 and $0.9 million as of December 31, 2013. This asset, which represents software license agreements, was not placed in service as of June 30, 2014, therefore amortization of intangible assets was zero for the three and six months endedJune 30, 2014 and June 30, 2013. The terms of the license agreements are definite, and once placed in service, the Company plans to amortize the cost over the estimated useful life, which is approximately 5 years.

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Inventories

6 Months Ended

Jun. 30, 2014

Inventory Disclosure [Abstract]

Inventories

Inventories

Inventories are stated at the lower of cost or market and consist of materials, labor and overhead. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. Inventories, net of reserves, consisted of the following (in thousands):

	June 30, 2014		December 31, 2013
Raw materials	$	4,374	$	5,723
Work-in process	1,381		1,121
Finished goods	22,730		16,137
Total	$	28,485	$	22,981

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Fair Value Measurement (Tables)

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value, by Balance Sheet Grouping

Cash equivalents are included in the consolidated balance sheets as follows (in thousands):

	Cost		Fair Value
December 31, 2013	$	14,001	$	14,001
June 30, 2014	$	11,604	$	11,604

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Accounts Receivable Factoring

6 Months Ended

Jun. 30, 2014

Receivables [Abstract]

Accounts Receivable Factoring

Accounts Receivable Factoring

The Company's Italian subsidiary has agreements with unrelated third-parties for the factoring of specific accounts receivable in Italy in order to reduce the amount of working capital required to fund such receivables. At June 30, 2014, Tecnonet's factoring facility agreements permitted the factoring of up to €10.0 million, or $13.7 million, worth of receivables in operations outside of the United States. The factoring of accounts receivable under these agreements is accounted for as a sale in accordance with ASC 860 Transfers and Servicing. The Company has no retained interests or servicing liabilities related to the accounts receivable that have been sold in Italy.

At June 30, 2014, and December 31, 2013, the face amount of total outstanding accounts receivable pursuant to these agreements was $12.7 million and $17.2 million, respectively. Receivables transferred to the factor are derecognized at the date of sale and the proceeds are recorded at fair value. Proceeds consist of a receivable due from the factor. Cash received from the factor is recorded as a reduction of the receivable due from the factor. The related outstanding balances due from the factor were $10.0 million and $7.7 million as of June 30, 2014 and December 31, 2013, respectively, and are included in other receivables on the accompanying balance sheets. The related losses on sale were $0.07 million and $0.05 million for the three months endedJune 30, 2014 and June 30, 2013, respectively and $0.11 million and $0.13 million for the six months endedJune 30, 2014 and June 30, 2013, respectively and are included in interest expense on the accompanying consolidated statements of operations.

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Share-Based Compensation

6 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Compensation

Share-Based Compensation

MRV records share-based compensation expense in accordance with ASC Topic 718Compensation - Stock Compensation. The following table summarizes the impact on MRV's results of operations of recording share-based compensation for the three and six months endedJune 30, 2014 and 2013 (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
Cost of goods sold	$	33	$	26	$	53	$	43
Product development and engineering	50		15		73		25
Selling, general and administrative	245		42		349		234
Total share-based compensation expense (1)	$	328	$	83	$	475	$	302

(1) Income tax benefits realized from stock option exercises and similar awards were immaterial in both periods.

The Company granted 173,722 stock options during the three months endedJune 30, 2014 and the related fair value was $7.16 per option. The Company granted 85,907 restricted shares during the three months endedJune 30, 2014 and the related fair value was $14.40 per share. The Company granted 80,242 stock options during the three months endedJune 30, 2013 and the related fair value was $4.89 per share. The Company granted 90,387 restricted shares during the three months endedJune 30, 2013 and the related fair value was $9.99 per share. No options and restricted shares were granted during the three months ended March 31, 2014, and 2013. As of June 30, 2014, the total unrecognized share-based compensation balance for unvested securities, net of expected forfeitures, was$1.9 million, which is expected to be amortized over a weighted-average period of2.4 years.

Valuation Assumptions

MRV uses the Black-Scholes option pricing model to estimate the fair value of stock option awards or related modifications. The Black-Scholes model requires the use of subjective and complex assumptions including the option's expected life and the underlying stock price volatility. MRV bases volatility on the Company's historical quoted prices and peer company data. The following weighted average assumptions were used for estimating the fair value of options granted during the six months endedJune 30, 2014 and the options modified during the six months endedJune 30, 2013, respectively.

Six months ended June 30,	2014		2013
Risk-free interest rate	2.0	%	1.2	%
Dividend yield (1)	—		—
Volatility	51	%	52	%
Expected life (in years)	5.9		5.7

(1) As the Company does not pay a dividend on a regular basis, and dividends paid in the past have been special in nature, a dividend rate of zero was used.

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Product Warranty

6 Months Ended

Jun. 30, 2014

Product Warranties Disclosures [Abstract]

Product Warranty

Product Warranty

As of June 30, 2014 and December 31, 2013, MRV's product warranty liability recorded in accrued liabilities was $0.6 million. MRV accrues for warranty costs as part of cost of goods sold based on associated material product costs, technical support labor costs and associated overhead. The products sold are generally covered by a warranty for periods of 90 days to three years.

The following table summarizes the change in product warranty liability during the six months endedJune 30, 2014 (in thousands):

	Six months ended
	June 30, 2014
Beginning balance	$	578
Cost of warranty claims	(18		)
Accruals for product warranties	43
Total	$	603

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Net Income (Loss) Per Share

6 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

Net Income (Loss) Per Share

Net Income (Loss) Per Share

Basic net income (loss) per share is computed using the weighted average number of shares of common stock ("Common Stock") outstanding, including restricted shares which, although they are legally outstanding and have voting rights, are subject to vesting and are treated as common stock equivalents in calculating basic income (loss) per share. Diluted net income (loss) per share is computed using the weighted average number of shares of Common Stock outstanding and dilutive potential shares of Common Stock from stock options outstanding during the period. Diluted shares outstanding include the dilutive effect of in-the-money options, which is calculated based on the average share price for each period using the treasury stock method.

Outstanding stock options to purchase 0.4 million shares were excluded from the computation of dilutive shares for the three months ended June 30,2014 and 2013 because of the net loss. In addition, for the three months ended June 30,2014, there were 8,141 potentially dilutive shares excluded from the calculation of diluted net loss per share because they were anti-dilutive, and there were no potentially dilutive shares to be excluded from the calculation of diluted net loss per share for the three months endedJune 30, 2013. Treasury shares are excluded from the number of shares outstanding.

Outstanding stock options to purchase 0.3 million shares were excluded from the computation of dilutive shares for the six months ended June 30,2014 because of the net loss. Outstanding stock options to purchase 0.4 million shares were excluded in the computation of dilutive shares for the six months ended June 30,2013 because of the net loss. In addition, for the six months ended June 30,2014, there were 7,206 potentially dilutive shares excluded from the calculation of diluted net loss per share because they were anti-dilutive, and there were no potentially dilutive shares to be excluded from the calculation of diluted net loss per share for the six months ended June 30,2013. Treasury shares are excluded from the number of shares outstanding.

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Segment Reporting and Geographic Information

6 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

Segment Reporting and Geographic Information

Segment Reporting and Geographic Information

MRV operates its business in two segments: Network Equipment and Network Integration. Network Equipment designs, manufactures, distributes and services optical networking solutions and Internet infrastructure products, and Network Integration distributes network solutions and Internet infrastructure products and provides value-added integration and support services for customers' networks.

The accounting policies of the segments are the same as those described in the summary of significant accounting polices disclosed in MRV's2013Form 10-K. MRV evaluates segment performance based on revenues, gross profit and operating income (loss) of each segment. As such, there are no separately identifiable Statements of Operations data below operating income (loss).

The following table summarizes revenues by segment, including intersegment revenues (in thousands):

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2014			2013			2014			2013
Network Equipment	$	21,833		$	21,100		$	44,152		$	42,046
Network Integration	21,355			17,135			41,408			35,117
Before intersegment adjustments	43,188			38,235			85,560			77,163
Intersegment adjustments	(64		)	(60		)	(118		)	(83		)
Total	$	43,124		$	38,175		$	85,442		$	77,080

Network Equipment revenue primarily consists of optical communication systems that include Metro Ethernet equipment, optical transport equipment, lab automation equipment, out-of-band network equipment, and the related service revenue and fiber optic components sold as part of system solutions. Network Integration revenue primarily consists of value-added integration and support service revenue, related third-party product sales (including third-party product sales through distribution) and fiber optic components sold as part of system solutions. All Network Integration's sales are within Italy.

One customer accounted for $23.6 million and $22.2 million of revenue in Network Integration revenue, or 28% and 29% of total revenue, for the six months endedJune 30, 2014 and 2013, respectively. Another customer accounted for $14.2 million and $9.0 million of Network Integration revenue, or 17% and 12% of total revenue, for the six months endedJune 30, 2014 and 2013, respectively.

One customer accounted for $12.6 million and $10.8 million of revenue in Network Integration revenue, or 29% of total revenue, for the three months endedJune 30, 2014 and 2013, respectively. Another customer accounted for $7.7 million and $4.1 million of Network Integration revenue, or 18% and 11% of total revenue, for the three months endedJune 30, 2014 and 2013, respectively.

One customer in Network Integration accounted for 25% and 22% of total net accounts receivable as of June 30, 2014, and December 31, 2013, respectively. Another Network Integration customer accounted for 28% and 27% of total net accounts receivable as of June 30, 2014, and December 31, 2013, respectively.

The following table summarizes external revenue by geographic region (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
United States	$	13,555	$	13,676	$	26,411	$	25,801
Americas (Excluding the U.S.)	126		855		682		2,480
Europe	26,522		21,869		53,101		45,290
Asia Pacific	2,921		1,775		5,248		3,509
Total	$	43,124	$	38,175	$	85,442	$	77,080

Revenue from external customers attributed to Italy totaled $21.4 million and $17.3 million for the three months ended June 30, 2014 and June 30, 2013 respectively. Revenue from external customers attributed to Italy totaled $41.8 million and $35.4 million for the six months endedJune 30, 2014 and June 30, 2013 respectively.

The following table summarizes long-lived assets, consisting of property and equipment, by geographic region (in thousands):

	June 30, 2014		December 31, 2013
Americas	$	3,199	$	3,326
Europe	2,017		2,194
Asia Pacific	32		35
Total	$	5,248	$	5,555

The following table provides selected Statement of Operations information by business segment (in thousands):

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Gross profit
Network Equipment	$	11,185		$	11,183		$	21,944		$	21,949
Network Integration	3,598			2,187			6,088			4,444
Total before intersegment adjustments	14,783			13,370			28,032			26,393
Corporate unallocated and intersegment adjustments(1)	(1		)	2			1			6
Total	$	14,782		$	13,372		$	28,033		$	26,399
Depreciation expense
Network Equipment	$	433		$	283		$	969		$	583
Network Integration	51			52			100			105
Corporate	20			48			59			96
Total	$	504		$	383		$	1,128		$	784
Operating income (loss)
Network Equipment	$	(1,503	)	$	(296	)	$	(4,343	)	$	(1,415	)
Network Integration	1,704			675			2,550			1,366
Total before intersegment adjustments	201			379			(1,793		)	(49		)
Corporate unallocated operating loss and adjustments (1)	(1,327		)	(914		)	(3,182		)	(4,499		)
Total	$	(1,126	)	$	(535	)	$	(4,975	)	$	(4,548	)

(1) Adjustments reflect the elimination of intersegment revenue and profit in inventory.

The following tables provide selected Balance Sheet and Statement of Cash Flow information by business segment (in thousands):

	Six months ended
	June 30,
	2014		2013
Additions to Fixed Assets
Network Equipment	$	1,019	$	2,064
Network Integration	74		46
Corporate	83		6
Total	$	1,176	$	2,116

	June 30, 2014		December 31, 2013
Total Assets
Network Equipment	$	44,798	$	48,955
Network Integration	65,288		54,625
Corporate and intersegment eliminations	19,053		24,367
Total	$	129,139	$	127,947

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Inventories (Net of Reserves) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Inventory Disclosure [Abstract]
Raw materials	$ 4,374	$ 5,723
Work-in process	1,381	1,121
Finished goods	22,730	16,137
Total	$ 28,485	$ 22,981

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Income Taxes (Narrative) (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013 Federal Tax Authority	Dec. 31, 2013 Federal Tax Authority Capital Loss Carryforward	Dec. 31, 2013 State Tax Authority	Dec. 31, 2013 State Tax Authority Capital Loss Carryforward	Dec. 31, 2013 Foreign Tax Authority
Operating Loss Carryforwards [Line Items]
Loss before provision for income taxes	$ (1,586,000)	$ (878,000)	$ (5,552,000)	$ (5,006,000)
Interest and penalties on a settlement of a tax audit of a foreign subsidiary	300,000
Net operating losses					172,300,000		93,100,000		95,800,000
Capital loss carryforwards						$ 110,500,000		$ 24,000,000

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Income Taxes

6 Months Ended

Jun. 30, 2014

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The following table provides details of income taxes (in thousands, except percentages):

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Loss before provision for income taxes	$	(1,586	)	$	(878	)	$	(5,552	)	$	(5,006	)
Provision for income taxes	681			115			932			421
Effective tax rate	(43		)%	(13		)%	(17		)%	(8		)%

The effective tax rate fluctuates based on the amount of pre-tax income or loss generated in the various jurisdictions where we conduct operations and pay income tax. The income tax expense on an operating loss of $1.6 million in the second quarter of 2014 is due to income tax associated with our foreign subsidiaries that do not benefit from our federal net operating loss carryforwards and from the accrual of an income tax liability including interest and penalties of $0.3 million on a settlement of a tax audit of a foreign subsidiary. The interest and penalties related to the income tax liability are recognized in the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included in the income tax liability in the consolidated balance sheet.

As of December 31, 2013, we had net operating losses ("NOLs") of $172.3 million, $93.1 million, and $95.8 million for federal, state, and foreign income tax purposes, respectively. Additionally, the Company has capital loss carryforwards of $110.5 million and $24.0 million for federal and state tax purposes, respectively. The capital loss carry forwards, which were generated by the sale of Source Photonics, expire in 2015. Under the Internal Revenue Code, if a corporation undergoes an "ownership change," the corporation's ability to use its pre-change NOLs, capital loss carry forwards and other pre-change tax attributes to offset its post-change income may be limited. An ownership change is generally defined as a greater than 50% change in its equity ownership by value over a three-year period. We may experience an ownership change in the future as a result of subsequent shifts in our stock ownership. If we were to trigger an ownership change in the future, our ability to use any NOLs and capital loss carry forwards existing at that time could be limited. As of June 30, 2014, the US federal and state NOLs had a full valuation allowance.

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Product Warranty (Tables)

6 Months Ended

Jun. 30, 2014

Product Warranties Disclosures [Abstract]

Schedule of Product Warranty Liability

The following table summarizes the change in product warranty liability during the six months endedJune 30, 2014 (in thousands):

	Six months ended
	June 30, 2014
Beginning balance	$	578
Cost of warranty claims	(18		)
Accruals for product warranties	43
Total	$	603

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Share Repurchase (Narrative) (Details) (USD $)	6 Months Ended		0 Months Ended	6 Months Ended	7 Months Ended	0 Months Ended	7 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Dec. 03, 2012 December 2012 Share Repurchase Agreement	Jun. 30, 2013 December 2012 Share Repurchase Agreement	Jun. 30, 2013 December 2012 Share Repurchase Agreement	Aug. 15, 2013 August 2013 Share Repurchase Agreement	Mar. 31, 2014 August 2013 Share Repurchase Agreement
Equity, Class of Treasury Stock [Line Items]
Stock repurchase program, authorized amount			$ 10,000,000.0			$ 7,013,838
Treasury stock, shares acquired				141,412	181,717		127,510
Purchase of treasury shares	$ 0	$ 1,356,000		$ 1,400,000	$ 1,800,000		$ 1,300,000

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Share-Based Compensation (Valuation Assumptions) (Details) (Stock Options [Member])	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-free interest rate	2.00%	1.20%
Dividend yield	0.00%	0.00%
Volatility	51.00%	52.00%
Expected life (in years)	5 years 10 months 24 days	5 years 8 months 12 days

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Condensed Consolidated Balance Sheets (unaudited) (Parenthetical) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Statement of Financial Position [Abstract]
Preferred stock, par value (usd per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (usd per share)	$ 0.0017	$ 0.0017
Common stock, shares authorized	16,000,000	16,000,000
Common stock, shares issued	8,222,000	8,143,000
Common stock, shares outstanding	7,365,000	7,286,000
Treasury stock, shares	856,000	856,000

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Credit Risk

6 Months Ended

Jun. 30, 2014

Receivables [Abstract]

Credit Risk

Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash and cash equivalents placed with high credit quality institutions and accounts receivable due from customers. MRV evaluates the collectability of accounts receivable based on a combination of factors. If MRV becomes aware of a customer's inability to meet its financial obligations after a sale has occurred, the Company records an allowance to reduce the net receivable to the amount that it reasonably believes to be collectable from the customer. For all other customers, the Company records allowances for doubtful accounts based on the length of time the receivables are past due, the current business environment, and historical experience. If the financial conditions of MRV's customers were to deteriorate or if economic conditions worsen, additional allowances may be required in the future. Accounts receivable are charged off at the point they are considered uncollectible.

The following table summarizes the changes in the allowance for doubtful accounts during the six months endedJune 30, 2014(in thousands):

	Six months ended
	June 30, 2014
Balance at beginning of period	$	2,183
Charged (reversed) to expense	(43		)
Write-offs, net of amounts recovered	2
Foreign currency translation adjustment	(9		)
Balance at end of period	$	2,133

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Share-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs

The following table summarizes the impact on MRV's results of operations of recording share-based compensation for the three and six months endedJune 30, 2014 and 2013 (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
Cost of goods sold	$	33	$	26	$	53	$	43
Product development and engineering	50		15		73		25
Selling, general and administrative	245		42		349		234
Total share-based compensation expense (1)	$	328	$	83	$	475	$	302

(1) Income tax benefits realized from stock option exercises and similar awards were immaterial in both periods.

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

The following weighted average assumptions were used for estimating the fair value of options granted during the six months endedJune 30, 2014 and the options modified during the six months endedJune 30, 2013, respectively.

Six months ended June 30,	2014		2013
Risk-free interest rate	2.0	%	1.2	%
Dividend yield (1)	—		—
Volatility	51	%	52	%
Expected life (in years)	5.9		5.7

(1) As the Company does not pay a dividend on a regular basis, and dividends paid in the past have been special in nature, a dividend rate of zero was used.

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Net Income (Loss) Per Share (Narrative) (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share (in shares)	400,000		300,000	400,000
Potentially Dilutive Shares [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share (in shares)	8,141	0	7,206	0

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Share Repurchase

6 Months Ended

Jun. 30, 2014

Equity [Abstract]

Share Repurchase

Share Repurchase

On December 3, 2012, the Company Board of Directors approved a repurchase of shares of Common Stock of the Company in an amount up to $10.0 million under a stock repurchase program that was scheduled to expire on December 31, 2013. Under this program the Company purchased 141,412 shares at a total cost of approximately $1.4 million during the six months ended June 30, 2013. Since December 3, 2012, the Company purchased 181,717 shares at a total cost of approximately $1.8 million through June 30, 2013. No additional shares were repurchased during the three and six months ended June 30, 2013 under this plan.

On August 15, 2013, the Company Board of Directors terminated the Company's existing    stock repurchase plan and approved a replacement repurchase plan on substantially the same terms in an amount up to $7.0 million that expired on May 14, 2014. Since August 15, 2013 the Company has purchased 127,510 shares at a total cost of approximately $1.3 million through December 31, 2013. No additional shares were repurchased during the three and six months endedJune 30, 2014 under this plan.