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 September 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 November 4, 2014, 7,362,146 shares of Common Stock of MRV Communications, Inc. were outstanding.

1

MRV Communications, Inc.

Form 10-Q for the Quarter Ended September 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 nine months ended September 30, 2014 and 2013	3
	Condensed Consolidated Statements of Comprehensive (Loss) Income (unaudited) for the three and nine months ended September 30, 2014 and 2013	4
	Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2014 and December 31, 2013	5
	Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2014 and 2013	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36
PART II	Other Information	38
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 6.	Exhibits	40
	Signatures	41

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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   September 30,						Nine Months Ended   September 30,
	2014			2013			2014			2013
Revenue:
Product revenue	$	31,196		$	27,051		$	93,411		$	81,555
Service revenue	11,974			11,334			35,201			33,910
Total revenue	43,170			38,385			128,612			115,465
Cost of sales	28,454			23,411			85,863			74,092
Gross profit	14,716			14,974			42,749			41,373
Operating expenses:
Product development and engineering	5,060			4,627			16,030			13,729
Selling, general and administrative	10,080			10,308			32,118			32,153
Total operating expenses	15,140			14,935			48,148			45,882
Operating (loss) income	(424		)	39			(5,399		)	(4,509		)
Interest expense	(116		)	(41		)	(306		)	(414		)
Other expense, net	227			(132		)	(160		)	(217		)
Loss before provision for income taxes	(313		)	(134		)	(5,865		)	(5,140		)
Provision for income taxes	727			12			1,659			433
Net Loss	$	(1,040	)	$	(146	)	$	(7,524	)	$	(5,573	)
Net loss per share — basic	$	(0.14	)	$	(0.02	)	$	(1.03	)	$	(0.74	)
Net loss per share — diluted	$	(0.14	)	$	(0.02	)	$	(1.03	)	$	(0.74	)
Weighted average number of shares:
Basic	7,362			7,522			7,335			7,539
Diluted	7,362			7,522			7,335			7,539

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

3

MRV Communications, Inc.

Condensed Consolidated Statements of Comprehensive (Loss) Income

(In thousands)

(unaudited)

	Three Months Ended   September 30,						Nine Months Ended   September 30,
	2014			2013			2014			2013
Net Loss	$	(1,040	)	$	(146	)	$	(7,524	)	$	(5,573	)
Other comprehensive loss, net of tax
Foreign currency translation gain (loss)	(1,913		)	855			(2,078		)	460
Total comprehensive (loss) Income	$	(2,953	)	$	709		$	(9,602	)	$	(5,113	)

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)

	September 30, 2014			December 31, 2013
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	24,533		$	27,591
Restricted time deposits	436			249
Accounts receivable, net	37,527			49,990
Other receivables	15,284			8,220
Inventories, net	23,071			22,981
Income taxes receivable	530			1,256
Deferred income taxes	1,139			1,219
Other current assets	5,372			5,664
Total current assets	107,892			117,170
Property and equipment, net	5,159			5,555
Deferred income taxes, net of current portion	3,806			3,694
Intangible asset, net	751			873
Other assets	1,275			655
Total assets	$	118,883		$	127,947
Liabilities and stockholders' equity
Current liabilities:
Short-term debt	$	5,175		$	4,320
Deferred consideration payable	233			233
Accounts payable	22,576			23,991
Accrued liabilities	14,728			19,463
Deferred revenue	13,024			10,557
Other current liabilities	639			357
Total current liabilities	56,375			58,921
Other long-term liabilities	5,883			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 — 8,219 shares in 2014 and 8,143 shares in 2013
Outstanding — 7,362 shares in 2014 and 7,286 in 2013	270			270
Additional paid-in capital	1,284,319			1,281,883
Accumulated deficit	(1,215,860		)	(1,208,337		)
Treasury stock — 856 shares in 2014 and 856 shares in 2013	(10,412		)	(10,412		)
Accumulated other comprehensive (loss) income	(1,692		)	386
Total stockholders' equity	56,625			63,790
Total liabilities and stockholders' equity	$	118,883		$	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)

	Nine Months Ended   September 30,
	2014			2013
Cash flows from operating activities:
Net loss	$	(7,524	)	$	(5,573	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	1,688			1,288
Share-based compensation expense	706			511
Provision for doubtful accounts	80			323
Deferred income taxes	346			(803		)
Loss on disposition of property and equipment	—			18
Changes in operating assets and liabilities:
Accounts and other receivables	10,205			(4,308		)
Inventories	(1,403		)	(2,536		)
Other assets	(7,253		)	2,498
Accounts payable	170			1,571
Accrued liabilities	(2,409		)	1,770
Income tax payable	88			(34		)
Deferred revenue	2,899			2,438
Other current liabilities	98			(162		)
Net cash used in operating activities	(2,309		)	(2,999		)
Cash flows from investing activities:
Purchases of property and equipment	(1,914		)	(2,738		)
Proceeds from sale of investments in unconsolidated entities	—			(53		)
Investment in restricted time deposits	(187		)	(4		)
Net cash used in investing activities	(2,101		)	(2,795		)
Cash flows from financing activities:
Shares repurchased for tax withholdings on vesting of restricted stock awards	(15		)	—
Purchase of treasury shares	—			(2,654		)
Borrowings on short-term debt	17,528			7,085
Payments on short-term debt	(15,802		)	(8,524		)
Net cash provided by (used in) financing activities	1,711			(4,093		)
Effect of exchange rate changes on cash and cash equivalents	(359		)	97
Net decrease in cash and cash equivalents	(3,058		)	(9,790		)
Cash and cash equivalents, beginning of period	27,591			40,609
Cash and cash equivalents, end of period	$	24,533		$	30,819
Supplemental disclosure of cash flow information:
Cash paid during period for interest	$	247		$	215
Cash paid during period for income taxes	$	638		$	656

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 of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations although management 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 September 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 September 30, 2014, and the results of its operations and comprehensive income (loss) for the three and nine months endedSeptember 30, 2014 and 2013, and its cash flows for the nine months endedSeptember 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 three months ended September 30, 2014, the Company recorded an out-of-period adjustment to eliminate intercompany profit in inventory of $0.2 million, which resulted in an increase to net loss of $0.2 million for the three and nine months ended September 30, 2014. The Company reduced inventory by $0.2 million, and increased cost of sales by $0.2 million related to prior periods to remove the effect of profit in inventory not previously eliminated. Management evaluated the effects of this adjustment on the Company’s consolidated financial statements and concluded that the error was not material to any prior periods, individually or in the aggregate. These out-of-period adjustments did not have a material impact on the Company’s consolidated financial statements for the three and nine months ended September 30, 2014.

During the three months ended June 30, 2014, the Company recorded an out-of-period adjustment to defer previously recognized revenue of $2.0 million, which resulted in an increase to after-tax net loss of $0.1 million for the nine months ended September 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 increases in Inventory of $1.9 million, deferred revenue of $2.0 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. Management evaluated the effects of this adjustment on the Company’s consolidated financial statements and concluded that the error was not material to any prior periods, individually or in the aggregate. These out-of-period adjustments did not have a material impact on the Company’s consolidated financial statements for the nine months ended September 30, 2014.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Stands Update ("ASU")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. Management is currently evaluating the impact that adopting this new accounting guidance will have on its consolidated financial statements and footnote disclosures.

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (“ASU 2014-12”). The amendments in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Accounting Standards Codification Topic No. 718, “Compensation - Stock Compensation” (“ASC 718”), as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments in ASU 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in ASU 2014-12 either: (i) prospectively to all awards granted or modified after the effective date; or (ii) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. Management is currently evaluating the potential impact of the adoption of the new guidance, however does not expect the adoption of this new guidance to have a material impact 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.

8

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 September 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 Condensed Consolidated Balance Sheets as follows (in thousands):

	Cost		Fair Value
September 30, 2014	$	11,605	$	11,605
December 31, 2013	$	14,001	$	14,001

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 September 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. Management evaluates the collectability of accounts receivable based on a combination of factors. If management 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.

9

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

	Nine months ended
	September 30, 2014
Balance at beginning of period	$	2,183
Charged (reversed) to expense	80
Write-offs, net of amounts recovered	(69		)
Foreign currency translation adjustment	(87		)
Balance at end of period	$	2,107

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):

	September 30, 2014		December 31, 2013
Raw materials	$	4,119	$	5,723
Work-in process	985		1,121
Finished goods	17,967		16,137
Total	$	23,071	$	22,981

6. Intangible Asset

The balance of the intangible asset was $0.8 million as of September 30, 2014 and $0.9 million as of December 31, 2013. A portion of this, which represents software license agreements, was placed in service as of September 30, 2014. Amortization of intangible assets was $0.01 million for the three and nine months endedSeptember 30, 2014. There was no amortization recorded for the three and nine months ended September 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.

The following table illustrates the estimated future amortization expense of intangible assets placed into service as of September 30, 2014 (in thousands):

Fiscal Years	Estimated Amortization Expense
2014	$	17
2015	68
2016	68
2017	68
2018	68
Thereafter	42
	$	331

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7. Product Warranty

As of September 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 nine months endedSeptember 30, 2014 (in thousands):

	Nine months ended
	September 30, 2014
Beginning balance	$	578
Cost of warranty claims	(18		)
Accruals for product warranties	52
Total	$	612

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 September 30,2014, and 2013 as they were anti-dilutive because of the net loss. In addition, for the three months ended September 30,2014, there were 10,907 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 endedSeptember 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 nine months ended September 30,2014, as they were anti-dilutive because of the net loss. Outstanding stock options to purchase 0.4 million shares were excluded in the computation of dilutive shares for the nine months ended September 30,2013, as they were anti-dilutive because of the net loss. In addition, for the nine months ended September 30,2014, there were 7,887 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 nine months ended September 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 at fair value. The following table summarizes the impact on MRV's results of operations of recording share-based compensation for the three and nine months endedSeptember 30, 2014, and 2013 (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2014		2013		2014		2013
Cost of goods sold	$	34	$	27	$	87	$	70
Product development and engineering	49		21		122		46
Selling, general and administrative	148		161		497		395
Total share-based compensation expense (1)	$	231	$	209	$	706	$	511

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

The Company granted 15,000 stock options during the three months endedSeptember 30, 2014, and the related fair value was $6.06 per option. The Company granted 5,000 restricted shares during the three months endedSeptember 30, 2014, and the related fair value was $13.46 per share. The Company granted no stock options and no restricted shares during the three months endedSeptember 30, 2013. The Company granted 188,722 stock options during the nine months ended September 30, 2014 and the related weighted average fair value was $7.07 per share. The average fair value of 90,907 restricted shares granted during the nine months ended September 30, 2014, was $14.35 per share. The Company granted 80,242 stock options during the nine months ended September 30, 2013, and the related weighted average fair value was $4.89 per share. The average fair value of 91,388 restricted shares granted during the nine months ended September 30, 2013, was $9.98 per share. As of September 30, 2014, the total unrecognized share-based compensation balance for unvested securities, net of expected forfeitures, was$1.8 million, which is expected to be amortized over a weighted-average period of2.3 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 nine months endedSeptember 30, 2014 and the options modified during the nine months endedSeptember 30, 2013, respectively.

Nine months ended September 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.

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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. Management 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   September 30,						Nine Months Ended   September 30,
	2014			2013			2014			2013
Network Equipment	$	21,979		$	22,806		$	66,131		$	64,852
Network Integration	21,237			15,585			62,644			50,701
Before intersegment adjustments	43,216			38,391			128,775			115,553
Intersegment adjustments	(46		)	(6		)	(163		)	(88		)
Total	$	43,170		$	38,385		$	128,612		$	115,465

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 $11.0 million and $10.4 million of revenue in Network Integration revenue, or 25% and 27% of total revenue, for the three months endedSeptember 30, 2014, and 2013, respectively. Another customer accounted for $6.1 million and $4.0 million of Network Integration revenue, or 14% and 10% of total revenue, for the three months endedSeptember 30, 2014, and 2013, respectively.

One customer accounted for $33.8 million and $32.5 million of revenue in Network Integration revenue, or 26% and 28% of total revenue, for the nine months endedSeptember 30, 2014, and 2013, respectively. Another customer accounted for $20.2 million and $12.9 million of Network Integration revenue, or 16% and 11% of total revenue, for the nine months endedSeptember 30, 2014, and 2013, respectively.

One customer in Network Integration accounted for 12% and 22% of total net accounts receivable as of September 30, 2014, and December 31, 2013, respectively. Another Network Integration customer accounted for 29% and 27% of total net accounts receivable as of September 30, 2014, and December 31, 2013, respectively.

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

	Three months ended				Nine months ended
	September 30,				September 30,
	2014		2013		2014		2013
United States	$	13,254	$	15,010	$	39,665	$	40,811
Americas (Excluding the U.S.)	197		972		879		3,452
Europe	25,553		21,275		78,653		66,565
Asia Pacific	4,166		1,128		9,415		4,637
Total	$	43,170	$	38,385	$	128,612	$	115,465

Revenue from external customers attributed to Italy totaled $21.2 million and $16.0 million for the three months ended September 30, 2014, and September 30, 2013 respectively. Revenue from external customers attributed to Italy totaled $63.0 million and $51.5 million for the nine months endedSeptember 30, 2014, and September 30, 2013 respectively.

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

	September 30, 2014		December 31, 2013
Americas	$	3,256	$	3,326
Europe	1,874		2,194
Asia Pacific	29		35
Total	$	5,159	$	5,555

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2014			2013			2014			2013
Gross profit
Network Equipment	$	11,062		$	12,041		$	33,007		$	33,990
Network Integration	3,654			2,934			9,742			7,378
Total before intersegment adjustments	14,716			14,975			42,749			41,368
Corporate unallocated and intersegment adjustments(1)	—			(1		)	—			5
Total	$	14,716		$	14,974		$	42,749		$	41,373
Depreciation expense
Network Equipment	$	459		$	406		$	1,428		$	988
Network Integration	50			54			149			159
Corporate	52			45			111			141
Total	$	561		$	505		$	1,688		$	1,288
Operating income (loss)
Network Equipment	$	(953	)	$	87		$	(5,296	)	$	(1,328	)
Network Integration	1,762			1,525			4,311			2,891
Total before intersegment adjustments	809			1,612			(985		)	1,563
Corporate unallocated operating loss and adjustments (1)	(1,233		)	(1,573		)	(4,414		)	(6,072		)
Total	$	(424	)	$	39		$	(5,399	)	$	(4,509	)

(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):

	Nine months ended
	September 30,
	2014		2013
Additions to Fixed Assets
Network Equipment	$	1,736	$	2,679
Network Integration	95		53
Corporate	83		6
Total	$	1,914	$	2,738

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	September 30, 2014		December 31, 2013
Total Assets
Network Equipment	$	42,457	$	48,955
Network Integration	58,259		54,625
Corporate and intersegment eliminations	18,167		24,367
Total	$	118,883	$	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 also 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 September 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.

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 paid $1.9 million in payment for services of defense counsel and other parties through December 31, 2013, above the insured amount.

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In May 2014, a former customer of Tecnonet S.p.A.(Tecnonet), the Company's Italian subsidiary, filed a claim in an Italian civil court alleging that Tecnonet, and two of its 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 into 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.

Nhan T. Vo, individually and on behalf of other aggrieved employees vs. the Company, Superior Court of California, County of Los Angeles. On June 27, 2013, the plaintiff in this matter filed a lawsuit against the Company alleging claims for failure to properly pay overtime or provide meal and rest breaks to its non-exempt employees in California, among other things. The complaint seeks an unspecified amount of damages and penalties under provisions of the Labor Code, including the Labor Code Private Attorneys General Act. The Company has filed an answer denying all allegations regarding the plaintiff’s claims and asserting various defenses. The Company is currently in the discovery phase of this case.  As the ultimate outcome of this matter is uncertain no amounts have been accrued by the Company as of the date of this report. Depending on the actual outcome of this case, provisions could be recorded in the future which may have a material adverse effect on the Company’s operating results.

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 management 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.

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 September 30, 2014, Tecnonet's factoring facility agreements permitted the factoring of up to €15.0 million, or $19.0 million, worth of receivables 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 September 30, 2014, and December 31, 2013, the face amount of total outstanding accounts receivable pursuant to these agreements was $18.2 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 $14.9 million and $7.7 million as of September 30, 2014, and December 31, 2013, respectively, and are included in other receivables on the accompanying balance sheets. The related losses on sale were $0.1 million and $0.1 million for the three months endedSeptember 30, 2014, and September 30, 2013, respectively and $0.2 million and $0.2 million for the nine months endedSeptember 30, 2014, and September 30, 2013, respectively and are included in interest expense on the accompanying consolidated statements of operations.

14. Share Repurchase

On December 3, 2012, the Company's 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 expired on December 31, 2013. Under this program, the Company purchased 261,863 shares at a total cost of approximately $2.6 million during the nine months ended September 30, 2013. From December 3, 2012, through September 30, 2013, the Company purchased 302,178 shares at a total cost of approximately $3.0 million.

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On August 15, 2013, the Company's Board of Directors terminated the 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. From August 15, 2013, through December 31, 2013, the Company purchased 127,510 shares at a total cost of approximately $1.3 million. No additional shares were repurchased during the three and nine months endedSeptember 30, 2014, under this plan.

15. Income Taxes

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2014			2013			2014			2013
Loss before provision for income taxes	$	(313	)	$	(134	)	$	(5,865	)	$	(5,140	)
Provision for income taxes	727			12			1,659			433
Effective tax rate	(232		)%	(9		)%	(28		)%	(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 of $0.7 million on an operating loss before provision for income taxes of $0.3 million for the three months ended September 30, 2014, is due to income tax associated with our foreign subsidiaries that do not benefit from our federal net operating loss carryforwards. The income tax expense of $1.7 million on an operating loss before provision for income taxes of $5.9 million for the nine months ended September 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 Tecnonet.

In 2013, the Italian Tax Authorities commenced an examination of Tecnonet and proposed a 100% disallowance of the deduction of certain sponsorship and advertising expenses for the years 2006 to 2011. The Company's management 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 the tax audit. During the three months ended June 30, 2014, the Italian tax authorities offered to reduce the 100% disallowance by 60%. Our local external tax advisers advised management that the 60% offer was a good result and that litigating the matter in Italian courts could be a protracted process despite the strong technical merits of our tax position. In consideration of our tax adviser’s assessment and management's desire to resolve this uncertainty, management accepted the 60% offer and settled with the Italian tax authorities in July 2014.

The Company recorded the interest and penalties of $0.1 million related to the accrued income tax expense of $0.2 million in income tax expense in the accompanying Condensed Consolidated Statement of Operations. Accrued interest and penalties are included in the related income tax liability in the Condensed 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 other expenses in the accompanying Condensed Consolidated Statement of Operations. Accrued interest and penalties are included in the related current accrued liability in the Condensed Consolidated Balance Sheet in June 2014. The accrued income tax liability and accrued VAT liability including interest and penalties of $0.5 million were paid in full on October 3, 2014.

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 September 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 is a supplier of a wide range of communications equipment from leading global manufacturers, as well as telecommunications solutions and services, including network infrastructure, unified communications, mobility and wireless, network security, cloud computing services, managed call center services, network integration, and optimization. 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 products and services.  Our recent introduction of the OptiDriver and OptiPacket product lines and the enhancement of existing products are positioning us to aggressively seek to retain current customers and capture additional market share. We expect the competitive landscape to remain dynamic. As technologies migrate toward being software-driven and the network layers converge, we expect to see competition for our products and services to increase.

As we seek opportunities for our OptiDriver and OptiPacket systems, additional investment in demonstration equipment, inventory, and deployment activities will be required. These investments may burden our results before we begin to see revenues as the sales cycle for these products can extend 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, places working capital 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 the United Kingdom. For the nine months endedSeptember 30, 2014 and 2013, foreign revenue constituted 62% and 59% 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 September 30, 2014, the Company had $24.5 million in cash and cash equivalents, $0.4 million in restricted time deposits, and $5.2 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.

19

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.

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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.

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 annual 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 Condensed Consolidated 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 three months ended September 30, 2014, the Company recorded an out-of-period adjustment to eliminate intercompany profit in inventory of $0.2 million, which resulted in an increase to net loss of $0.2 million for the three and nine months ended September 30, 2014. The Company reduced inventory by $0.2 million, and increased cost of sales by $0.2 million related to prior periods to remove the effect of profit in inventory not previously eliminated. Management evaluated the effects of this adjustment on the Company’s consolidated financial statements and concluded that the error was not material to any prior periods, individually or in the aggregate. These out-of-period adjustments did not have a material impact on the Company’s consolidated financial statements for the three and nine months ended September 30, 2014.

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During the three months ended June 30, 2014, the Company recorded an out-of-period adjustment to defer previously recognized revenue of $2.0 million, which resulted in an increase to after-tax net loss of $0.1 million for the nine months ended September 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 $2.0 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. Management evaluated the effects of this adjustment on the Company’s consolidated financial statements and concluded that the error was not material to any prior periods, individually or in the aggregate. These out-of-period adjustments did not have a material impact on the Company’s consolidated financial statements for the nine months ended September 30, 2014.

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 nine months ended September 30,2014 and 2013, 62% and 59% 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 nine months ended September 30,2014, these currencies strengthened against the U.S. dollar compared to the nine months ended September 30,2013, so revenue and expenses in these currencies translated into slightly more dollars than they would have in the prior period. The Euro and Israeli new shekel strengthened 3% and 4% respectively against the U.S. dollar in nine months ended September 30,2014, compared to nine months ended September 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 nine months endedSeptember 30, 2014, compared to the three and nine months endedSeptember 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.

22

Management Discussion Snapshot

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

	Three months ended September 30,									Nine months ended September 30,
	2014					2013				2014					2013
	$			% (1)		$		% (1)		$			%(1)		$			% (1)
Revenue(1) (2)	$	43,170		100	%	$	38,385	100	%	$	128,612		100	%	$	115,465		100	%
Network Equipment	21,979			51		22,806		59		66,131			51		64,852			56
Network Integration	21,237			49		15,585		41		62,644			49		50,701			44
Gross profit (3)	$	14,716		34		$	14,974	39		$	42,749		33		$	41,373		36
Network Equipment	11,062			50		12,041		53		33,007			50		33,990			52
Network Integration	3,654			17		2,934		19		9,742			16		7,378			15
Operating expenses (4)	$	15,140		35		$	14,935	39		$	48,148		37		$	45,882		40
Network Equipment	12,016			55		11,954		52		38,302			58		35,318			54
Network Integration	1,892			9		1,408		9		5,431			9		4,486			9
Operating income (loss) (3) (4)	$	(424	)	(1	)	$	39	—		$	(5,399	)	(4	)	$	(4,509	)	(4	)
Network Equipment	(953		)	(4	)	87		—		(5,296		)	(8	)	(1,328		)	(2	)
Network Integration	1,762			8		1,525		10		4,311			7		2,891			6

___________________________________

(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.

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

Revenue

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

							Favorable/(Unfavorable)
Three months ended September 30:	2014			2013			$ Change			% Change		% Change constant currency(1)
Network Equipment	$	21,979		$	22,806		$	(827	)	(4	)%	(4	)%
Network Integration	21,237			15,585			5,652			36		36
Before intersegment adjustments	43,216			38,391			4,825			13		12
Intersegment adjustments (2)	(46		)	(6		)	(40		)	667		820
Total	$	43,170		$	38,385		$	4,785		12	%	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.

23

Consolidated revenue for the three months ended September 30, 2014, increased $4.8 million, or 12%, compared to the three months ended September 30, 2013, due to a $5.7 million, or 36%, increase in Network Integration revenue, offset by a $0.8 million, or 4%, decrease in Network Equipment revenue.

Network Equipment.    Revenue generated from Network Equipment decreased $0.8 million, or 4%, for the three months ended September 30, 2014, compared to the three months ended September 30, 2013. The decrease is primarily due to lower product revenues that were partially offset by higher service revenue volume. Revenues for our optical transport and out of band products increased in the third quarter of 2014 compared to same period in the prior year, which was offset by a decrease in network infrastructure management and carrier Ethernet networking. Geographically, the decrease in revenues was attributable to lower sales in the United States, Latin America and Europe. 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 September 30:	2014		2013		$ Change			% Change
Revenue, excluding intersegment sales:
United States	$	13,253	$	15,010	$	(1,757	)	(12	)%
Americas (Excluding the U.S.)	197		972		(775		)	(80	)
Europe	4,316		5,691		(1,375		)	(24	)
Asia Pacific	4,167		1,127		3,040			270
Total external sales	21,933		22,800		(867		)	(4	)
Sales to Network Integration:
Europe	46		6		40			667
Total intersegment sales	46		6		40			667
Total Network Equipment revenue	$	21,979	$	22,806	$	(827	)	(4	)%

Network Integration.    Revenue generated from Network Integration increased $5.7 million, or 36%, for the three months ended September 30, 2014, compared to the three months ended September 30, 2013. The $5.7 million increase in revenue was due to a $5.3 million, or 81%, increase in product revenue and a $0.4 million, or 4%, 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. The foreign exchange impact to Network Integration revenue was not material.

Gross Profit

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

						Favorable/(Unfavorable)
Three months ended September 30:	2014		2013			$ Change			% Change		% Change constant currency (1)
Network Equipment	$	11,062	$	12,041		$	(979	)	(8	)%	(8	)%
Network Integration	3,654		2,934			720			25		24
Before intersegment adjustments	14,716		14,975			(259		)	(2	)	—
Adjustments (2)	—		(1		)	1			(100	)	(2	)
Total	$	14,716	$	14,974		$	(258	)	(2	)%	(2	)%

(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.

24

Consolidated gross profit decreased $0.3 million in the three months ended September 30, 2014, compared to the three months ended September 30, 2013, principally due to variances in material costs from standard costs and the effect of adjustments in the valuation of service inventory partially offset by the 12% increase in revenue. Gross margin for the third quarter of 2014 was 34.1%, as compared to 39.0% in the third quarter of 2013. The 4.9 percentage point decrease was due to the variances in material costs and costs adjustments in Network Equipment. These decreases in gross margin were partially offset by a more favorable consolidated product to service revenue mix in the third quarter of 2014 as compared to the third quarter of 2013. In the third quarter of 2014, the consolidated effect of the change in constant currency did not materially impact gross profit. The above discussion includes the out-of-period adjustment of $0.2 million related to the elimination of intercompany profit in inventory, which decreased consolidated gross profit by $0.2 million in the current period and impacted consolidated gross margin by 0.5 percentage points.

Network Equipment.  Gross profit for Network Equipment decreased $1.0 million in the three months ended September 30, 2014, compared to the three months ended September 30, 2013, principally due to cost variances due to lower production volumes and adjustments to the valuation of service inventory. These effects were partially offset by the lower production labor and overhead costs arising from cost saving initiatives implemented during the fourth quarter of 2013. Gross margin for the three months ended September 30, 2014, was 50.3%, a decline of 2.5% percentage points from 52.8% for the three months ended September 30, 2013, principally caused by the cost variances along with an out-of-period adjustment of $0.2 million related to the elimination of intercompany profit in inventory and impacted Network Equipment gross margin by 1.0 percentage points. The foreign exchange impact to Network Equipment gross profit was not material.

Network Integration.  Gross profit for Network Integration increased $0.7 million, or 25% in the three months ended September 30, 2014, as compared to the three months ended September 30, 2013. The increase was essentially the result of the volume impact of the $5.7 million increase in revenue, $5.3 million of which was product related at substantially lower margins than our service revenue generates. Our gross margin was 17.2% and 18.8% for the quarter ended September 30, 2014 and 2013, respectively. The 1.6% percentage point decline was the result of the significant increase in product revenues in the quarter compared to the comparable prior year quarter. The foreign exchange impact to Network Integration gross profit was not material.

Operating Expenses

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

					(Favorable)/Unfavorable
Three months ended September 30:	2014		2013		$ Change			% Change		% Change constant currency (1)
Network Equipment	$	12,016	$	11,954	$	62		1	%	1	%
Network Integration	1,892		1,408		484			34	%	34	%
Total segment operating expenses	13,908		13,362		546			4	%	4	%
Corporate unallocated operating expenses and adjustments (2)	1,232		1,573		(341		)	(22	)%	(22	)%
Total	$	15,140	$	14,935	$	205		1	%	1	%

(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 for the three months ended September 30, 2014, were $15.1 million, or 35% of revenue, compared to $14.9 million, or 39% of revenue, for the three months ended September 30, 2013, an increase of $0.2 million. The increase was primarily due to an increase in Network Integration expenses of $0.5 million and an increase of $0.1 million in expenses at Network Equipment offset by a $0.3 million decrease of Corporate unallocated operating expenses as discussed below. In the third quarter of 2014, the consolidated effect of the change in constant currency was not material.

25

Network Equipment.    Operating expenses in Network Equipment for the three months ended September 30, 2014, were $12.0 million, or 55% of revenue, compared to $12.0 million, or 52% of revenue in three months ended September 30, 2013. The $0.1 million, or 1%, increase was due to a $0.4 million increase in salary costs for engineers supporting our product development initiatives and $0.5 million increase in salaries to enhance the U.S. sales organization, partially offset by $0.5 million decrease in external labor related to the ERP system implementation in 2013 and a $0.3 million decrease in general administrative charges related to bad debt and facility maintenance. The foreign exchange impact to Network Equipment operating expenses was not material.

Network Integration.    Operating expenses in Network Integration for the three months ended September 30, 2014, were $1.9 million, or 9% of revenue, compared to $1.4 million, or 9% of revenue, for the three months ended September 30, 2013. The $0.5 million increase was mainly due to $0.3 million of sales labor support costs to support increased revenue volume and an increase of $0.2 million in general and administrative charges related to accounting fees. In the third quarter of 2014, the foreign exchange impact to Network Integration operating expenses was not material.

Corporate. Corporate expenses decreased by $0.3 million for the three months ended September 30, 2014, compared to the three months ended September 30, 2013. The decrease was primarily related to a decrease in salaries and wages of $0.2 million and a decrease of $0.4 million in administrative overhead charges, as the prior year period was burdened by $0.2 million in warrant revaluation charges and $0.2 million in professional fees for financial advisory services that were not incurred in the current year to date periods. These amounts were offset by an increase in accounting fees of $0.3 million incurred during the period. The foreign exchange impact to corporate operating expenses was not material.

Operating Income (Loss)

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

							Favorable/(Unfavorable)
Three months ended September 30:	2014			2013			$ Change			% Change		% Change constant currency(1)
Network Equipment	$	(953	)	$	87		$	(1,040	)	(1,195	)%	(1,195	)%
Network Integration	1,762			1,525			237			16		15
Total segment operating income (loss)	809			1,612			(803		)	(50	)	(51	)
Corporate unallocated and adjustments (2)	(1,233		)	(1,573		)	340			22		(22	)
Total	$	(424	)	$	39		$	(463	)	(1,187	)%	(1,217	)%

(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 $1.0 million for three months ended September 30, 2014, compared to operating income of $0.1 million for the three months ended September 30, 2013. The $1.0 million change in operating results was primarily due to the $1.0 million decrease in gross profit, offset by the $0.1 million increase in operating expenses. Operating margin was (4)% in 2014 and 0.4% in 2013.

Network Integration.   Network Integration reported operating income of $1.8 million for the three months ended September 30, 2014, compared to $1.5 million for three months ended September 30, 2013. The increase was primarily due to the $0.7 millionincrease in gross profit that was partially offset by a $0.5 million increase in operating costs. Network Integration operating margin was 8% and 10% for the three months endedSeptember 30,2014 and 2013, respectively.

26

Interest Expense and Other Expense, Net

Interest expense was $0.1 million for the three months ended September 30, 2014, compared to $0.04 million for the three months ended September 30, 2013. 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 three months ended September 30, 2014, and 2013, was $0.7 million and $0.01 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 of $0.7 million on the loss before provision for income taxes of $0.3 million for the three months ended September 30, 2014, is due to income tax associated with our foreign subsidiaries that do not benefit from our federal net operating loss carryforwards.

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 September 30, 2014, the US federal and state NOLs had a full valuation allowance.

Nine months ended September 30, 2014 Compared To Nine months ended September 30, 2013

Revenue

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

							Favorable/(Unfavorable)
Nine months ended September 30:	2014			2013			$ Change			% Change		% Change constant currency(1)
Network Equipment group	$	66,131		$	64,852		$	1,279		2	%	2	%
Network Integration group	62,644			50,701			11,943			24		20
Before intersegment adjustments	128,775			115,553			13,222			11		10
Intersegment adjustments (2)	(163		)	(88		)	(75		)	85		85
Total	$	128,612		$	115,465		$	13,147		11	%	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 nine months ended September 30,2014, increased $13.1 million, or 11%, compared to the nine months ended September 30, 2013. This increase was due to an $11.9 million increase in Network Integration revenue, a $1.3 million increase in Network Equipment revenue, offset by the $0.1 million increase 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 nine months of 2013. The above discussion includes the out-of-period adjustment of $2.0 million recorded during the three months ended June 30, 2014, related to deferred revenue. Of this amount, the Company recognized $1.2 million during the three months ended September 30, 2014, reducing the impact on deferred revenues for the out-of-period adjustment recorded in the prior quarter to $0.8 million as of September 30, 2014.

27

Network Equipment Group.    Revenue generated from the Network Equipment group increased $1.3 million in the nine months ended September 30,2014, compared to the nine months ended September 30,2013. Revenues increased primarily due to a $1.7 million increase in product revenue offset by a $0.4 million decrease in service revenue. Revenues for our optical transport products increased during the nine months ended September 30, 2014, compared to the prior year period, offset by a decrease in carrier Ethernet networking and out of band products. Service revenues were down 5% 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 $4.9 million that was partially offset by a $3.7 million decrease in OCS Americas. The decrease in OCS Americas was primarily due to a revenue decline in the 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)
Nine months ended September 30:	2014		2013		$ Change			% Change
Revenue, excluding intersegment sales:
United States	$	39,665	$	40,811	$	(1,146	)	(3	)%
Americas (Excluding the U.S.)	879		3,452		(2,573		)	(75	)%
Europe	16,009		15,864		145			1
Asia Pacific	9,416		4,637		4,779			103
Total external sales	65,969		64,764		1,205			2
Sales to Network Integration group:
Europe	163		88		75			85
Total intersegment sales	163		88		75			85
Total Network Equipment revenue	$	66,132	$	64,852	$	1,280		2	%

Network Integration Group.    Revenue generated from the Network Integration group was $11.9 million, or 24% higher for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013. This increase was due to a $10.2 million, or 42% increase in product revenue and $1.7 million, or 6% increase in service revenues at Tecnonet. Tecnonet has seen an increase in product revenue order volume primarily as a result of significant projects in 2014 that may not continue in the future. The increase in service revenue was a result of market share gains resulting from our continued focus on this aspect of the business that has higher margins and potential for growth. Revenue would have been $1.9 millionlower for the nine months ended September 30, 2014 had foreign currency exchange rates remained the same as they were in the nine months ended September 30, 2013. All revenue in the Network Integration group was generated in Italy. The above discussion includes the out-of-period adjustment of $2.0 million recorded during the three months ended June 30, 2014, related to deferred revenue. Of this amount, the Company recognized $1.2 million during the three months ended September 30, 2014, reducing the impact on deferred revenues for the out-of-period adjustment recorded in the prior quarter to $0.8 million as of September 30, 2014.

28

Gross Profit

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

					Favorable/(Unfavorable)
Nine months ended September 30:	2014		2013		$ Change			% Change		% Change constant currency (1)
Network Equipment group	$	33,007	$	33,990	$	(983	)	(3	)%	(3	)%
Network Integration group	9,742		7,378		2,364			32		28
Before intersegment adjustments	42,749		41,368		1,381			3		3
Adjustments (2)	—		5		(5		)	(100	)	(80	)
Total	$	42,749	$	41,373	$	1,376		3	%	3	%

(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, or 3% for the nine months ended September 30, 2014, from the prior year period, principally due to the 11%increase in revenue offset by the pressure on pricing and revenue mix. Gross margin for the nine months ended September 30, 2014, was 33.2% compared to 35.8% for the nine months ended September 30, 2013. The 2.6 percentage point 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 nine months ended September 30, 2014, as compared to the nine months ended September 30, 2013. Gross profit would have been $0.3 millionlower for the nine months ended September 30, 2014, if foreign currency exchange rates had remained the same as they were in the nine months ended September 30, 2013. The above discussion includes the out-of-period adjustment of $0.2 million recorded during the three months ended June 30, 2014, related to deferred revenue. Of this amount, the Company recognized $0.1 million during the three months ended September 30, 2014, reducing the impact on consolidated gross profit for the out-of-period adjustment recorded in the prior quarter to $0.1 million for the nine months ended September 30, 2014. The above discussion also includes the out-of-period adjustment of $0.2 million related to the elimination of intercompany profit in inventory, which decreased consolidated gross profit by $0.2 million in the current period and impacted consolidated gross margin by 0.2 percentage points.

Network Equipment Group.    Gross profit for the Network Equipment segment decreased $1.0 million or 3% for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, principally due to a shift in the mix of product revenue toward our lower margin products and a negative effect on costs from lower production volumes. These effects were partially offset by lower production labor and overhead arising from cost saving initiatives implemented during the fourth quarter of 2013. Gross margin for the nine months ended September 30, 2014, was 49.9% a decline of 2.5% percentage points from 52.4% for the nine months ended September 30, 2013, principally caused by a decrease in sales to our European channel partners, which have a lower gross margin and lower pricing of mature products in advance of new products. This was partially offset by strong sales of our new OptiDriver product to a Tier 1 customer in Asia Pacific, which have a higher gross margin. The above discussion includes the out-of-period adjustment of $0.2 million related to the elimination of intercompany profit in inventory, which decreased Network Equipment gross profit by $0.2 million in the current period and impacted Network Equipment gross margin by 0.3 percentage points. Gross profit would have been flat in the nine months ended September 30, 2014, had foreign currency exchange rates remained the same as they were in the nine months ended September 30, 2013.

29

Network Integration Group.    Gross profit for the Network Integration segment increased $2.4 million, or 32% for the nine months ended September 30, 2014, compared to nine months ended September 30, 2013, primarily due to the $11.9 million increase in revenue for the nine months ended September 30, 2014, compared to the prior year period as discussed above. Gross margin for the nine months ended September 30, 2014, was 15.6% an increase of 1% percentage point from 14.6% for the nine months ended September 30, 2013, principally due to an improvement in product revenue gross margins. Gross profit would have been $0.3 millionlower in the nine months ended September 30, 2014, had foreign currency exchange rates remained the same as they were in the nine months ended September 30, 2013. The above discussion includes the out-of-period adjustment of $0.2 million recorded during the three months ended June 30, 2014, related to deferred revenue. Of this amount, the Company recognized $0.1 million during the three months ended September 30, 2014, reducing the impact on Network Integration gross profit for the out-of-period adjustment recorded in the prior quarter to $0.1 million for the nine months ended September 30, 2014.

Operating Expenses

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

					(Favorable)/Unfavorable
Nine months ended September 30:	2014		2013		$ Change			% Change		% Change constant currency (1)
Network Equipment group	$	38,302	$	35,318	$	2,984		8	%	8	%
Network Integration group	5,431		4,486		945			21	%	18	%
Total segment operating expenses	43,733		39,804		3,929			10	%	374	%
Corporate unallocated operating expenses and adjustments (2)	4,415		6,078		(1,663		)	(27	)%	(27	)%
Total	$	48,148	$	45,882	$	2,266		5	%	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) Corporate unallocated operating expenses include unallocated product development, and selling, general and administrative expenses.

Consolidated operating expenses were $48.1 million, or 37% of revenue, for the nine months ended September 30, 2014, compared to $45.9 million, or 40% of revenue, for the nine months ended September 30, 2013, an increase of $2.3 million, or 5%, including $1.0 million 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 $3.0 million increase in Network Equipment and $0.9 million increase in Network Integration related to investments in the core business offset by a $1.7 million decrease in Corporate, excluding the effect of the insurance proceeds.

Network Equipment Group.    Operating expenses in the Network Equipment group for the nine months ended September 30, 2014, were $38.3 million, or 58% of revenue, compared to $35.3 million, or 54% of revenue for the nine months ended September 30, 2013. The $3.0 million or 8% increase was due to $2.3 million in additional costs related to the planned higher investment in engineering and product development to drive future product development, an increase in sales and back office support costs of $1.2 million, offset by a decrease in general and administrative overhead of $0.5 million of costs in 2013 related to the implementation of our Oracle ERP system.

Network Integration Group.    Operating expenses in the Network Integration group for the nine months ended September 30, 2014, were $5.4 million, or 9% of revenue, compared to $4.5 million, or 9% of revenue, for the nine months ended September 30, 2013. The $0.9 million or 21% increase in operating expense was primarily due to additional sales costs for labor and commissions and administrative costs principally for audit related services. Operating expenses would have been $0.2 millionlower for the nine months ended September 30, 2014, had foreign currency exchange rates remained the same as they were in the prior year period.

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Corporate.    Operating expenses decreased $1.7 million in the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013. This decrease partially resulted from $1.4 million in lower labor and consulting fees incurred during the 2013 ERP system conversion and $0.1 million in lower auditing fees and accounting support fees. The nine months ended September 30, 2013, were also burdened by $1.3 million in legal fees 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.

Operating Income (Loss)

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

							Favorable/(Unfavorable)
Nine months ended September 30:	2014			2013			$ Change			% Change		% Change constant currency(1)
Network Equipment group	$	(5,296	)	$	(1,328	)	$	(3,968	)	299	%	299	%
Network Integration group	4,311			2,891			1,420			49		45
Total segment operating income (loss)	(985		)	1,563			(2,548		)	(163	)	(171	)
Corporate unallocated and adjustments (2)	(4,414		)	(6,072		)	1,658			27		(27	)
Total	$	(5,399	)	$	(4,509	)	$	(890	)	20	%	23	%

(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 $2.3 million, or 5%, increase in operating expenses offset by the $1.4 million, or 3%, increase in gross profit primarily led to a $0.9 million increase in our operating loss. Operating losses included share-based compensation expense of $0.7 million and $0.5 million for the nine months ended September 30, 2014 and 2013, respectively. Our operating loss would have been $0.1 million lower for the nine months ended September 30, 2014, had foreign currency exchange rates remained the same as they were in the prior year period. The above discussion includes the out-of-period adjustment of $0.2 million recorded during the three months ended June 30, 2014, related to deferred revenue. Of this amount, the Company recognized $0.1 million during the three months ended September 30, 2014, reducing the impact on deferred revenue for the out-of-period adjustment recorded in the prior quarter to $0.1 million as of September 30, 2014. The above discussion also includes the out-of-period adjustment of $0.2 million recorded in the three months ended September 30, 2014, related to the elimination of intercompany profit in inventory which increased consolidated operating loss by $0.2 million for the nine months ended September 30, 2014.

Network Equipment Group.    The Network Equipment group reported an operating loss of $5.3 million and $1.3 million for the nine months ended September 30, 2014 and 2013, respectively. The change in operating profit was due to the $3.5 million planned increase in operating expenses. Operating margin was (8)% for the nine months ended September 30, 2014, and (2)% for the nine months ended September 30, 2013. The above discussion includes the out-of-period adjustment of $0.2 million recorded in the three months ended September 30, 2014, related to the elimination of intercompany profit in inventory, which increased Network Equipment operating loss by $0.2 million for the nine months ended September 30, 2014.

Network Integration Group.    The Network Integration group reported operating income of $4.3 million for the nine months ended September 30, 2014, compared to operating income of $2.9 million for the nine months ended September 30, 2014. The increase in operating profit was primarily due to the 24% increase in Network Integration revenues. The Network Integration group operating margin was 7% for the nine months ended September 30, 2014 compared to 6% for the nine months ended September 30, 2013. The Network Integration group recorded an out-of-period adjustment related to deferred revenue during the three months ended June 30, 2014, that increased its operating loss by $0.2 million for the six months ended June 30, 2014. Of this amount, the Company recognized $0.1 million during the three months ended September 30, 2014, reducing the impact on deferred revenue for the out-of-period adjustment recorded in the prior quarter to $0.1 million as of September 30, 2014.

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Interest Expense and Other Expense, Net

Interest expense was $0.3 million in the nine months ended September 30,2014, and $0.4 million the nine months ended September 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 nine months ended September 30,2014 and 2013 was $1.7 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 of $1.7 million on the loss before provision for income taxes of $5.9 million for the nine months endedSeptember 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 Tecnonet.

Italy Tax Audit Settlement

In 2013, the Italian Tax Authorities commenced an examination of Tecnonet and proposed a 100% disallowance of the deduction of certain sponsorship and advertising expenses for the years 2006 to 2011. The Company's management 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 the tax audit. During the three months ended June 30, 2014, the Italian tax authorities offered to reduce the 100% disallowance by 60%. Our local external tax advisers advised management that the 60% offer was a good result and that litigating the matter in Italian courts could be a protracted process despite the strong technical merits of our tax position. In consideration of our tax adviser’s assessment and management's desire to resolve this uncertainty, management accepted the 60% offer and settled with the Italian tax authorities in July 2014.

The Company recorded the interest and penalties of $0.1 million related to the accrued income tax expense of $0.2 million in income tax expense in the accompanying Condensed Consolidated Statement of Operations. Accrued interest and penalties are included in the related income tax liability in the Condensed 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 other expenses in the accompanying Condensed Consolidated Statement of Operations. Accrued interest and penalties are included in the related current accrued liability in the Condensed Consolidated Balance Sheet in June 2014. The accrued income tax liability and accrued VAT liability including interest and penalties of $0.5 million were paid in full on October 3, 2014.

Liquidity and Capital Resources

During the nine months ended September 30, 2014, our cash and restricted time deposits decreased from $27.8 million to $25.0 million, a decrease of $2.9 million. Our cash outflows included a net loss of $7.5 million adjusted for non-cash expenses of $4.7 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 $2.4 million, including a $1.4 million increase in inventory due to increased purchases of certain products due to the transition from inside production to contract manufacturing of those products and timing of shipments, a $7.3 million increase in other assets due to increased factoring of receivables at Tecnonet, a $2.3 million decrease in accrued liabilities due to timing of payments of accrued expenses, offset by a $10.2 million decrease in accounts receivable due to increased factoring of receivables at Tecnonet, a $0.2 million increase in accounts payable due to an increase in materials purchased, and a $2.9 million increase in deferred revenue as a result of the timing of shipments. Cash used in investing activities included $1.9 million in purchases of property, plant, and equipment. Cash provided by financing activities included additional borrowings at Tecnonet of $17.5 million, partially offset by payments on short-term debt of $15.8 million at Tecnonet.

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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 $4.0 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 partially 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 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):

	September 30, 2014		December 31, 2013
Cash
Cash and cash equivalents	$	24,533	$	27,591
Restricted time deposits	436		249
	24,969		27,840
Short-term debt	5,175		4,320
Cash in excess of debt	$	19,794	$	23,520
Ratio of cash to debt(1)	4.8		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):

	September 30, 2014		December 31, 2013		Increase (decrease)
Lines of credit secured by accounts receivable	$	5,175	$	4,320	$	855

The increase in short-term debt at September 30, 2014, includes additional borrowings of $17.5 million, offset by payments of $15.8 million and the impact of changes in foreign currency exchange rates.

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Working Capital

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

	September 30, 2014		December 31, 2013
Current assets	$	107,892	$	117,170
Current liabilities	56,375		58,921
Working capital	$	51,517	$	58,249
Current ratio(1)	1.9		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 three months ended September 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.

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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 September 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 September 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 September 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 65.0% and 66.0% of our cost of sales and operating expenses are reported by these subsidiaries for the nine months ended September 30,2014 and 2013. These currencies were generally stronger against the U.S. dollar for the nine months ended September 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 nine months of 2013. For the nine months ended September 30,2014, we had approximately:

• $58.3 million in cost of goods and operating expenses recorded in euros;

• $0.7 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 nine months ended September 30, 2014, our costs would have increased to approximately:

• $64.1 million cost of goods and operating expenses recorded in euros;

• $0.8 million in cost of goods and operating expenses recorded in Taiwan dollars.

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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).

	September 30, 2014		December 31, 2013
U.S. dollars	$	17,680	$	24,162
Euros	5,777		1,744
Taiwan dollars	21		63
Israeli new shekels	563		1,148
Other	492		474
Total cash and cash equivalents	$	24,533	$	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 unremediated material weakness related to the inadequate design of internal controls over the accounting for revenue in our Italian subsidiary, Tecnonet as further described below.

Changes in Internal Controls

We designed and implemented remediation measures to address the material weakness identified as of June 30, 2014, and enhance our internal control over financial reporting. The material weakness related to the inadequate design of the internal control over the accounting for revenue in 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, we did not have adequate controls in place to ensure that revenue was properly deferred in accordance with U.S. GAAP. Management has implemented monitoring controls to ensure that transactions requiring revenue deferral are identified, evaluated, and properly recognized. These controls were tested at the end of the third quarter of 2014 with no exceptions identified. Management will continue evaluating the internal controls over the accounting for deferred revenue during the last quarter of 2014 to ensure the material weakness has been fully remediated.

36

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 our internal control over the revenue cut-off procedures and performed testing of these control changes through June 30, 2014, to determine whether implemented controls operate as management 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.

There have been no other changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We are committed to a strong internal control environment and will continue to review the effectiveness of our internal controls over financial reporting and other disclosure controls and procedures.

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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 paid $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.(Tecnonet), the Company's Italian subsidiary, filed a claim in an Italian civil court alleging that Tecnonet, and two of its 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 into 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.

Nhan T. Vo, individually and on behalf of other aggrieved employees vs. the Company, Superior Court of California, County of Los Angeles. On June 27, 2013, the plaintiff in this matter filed a lawsuit against the Company alleging claims for failure to properly pay overtime or provide meal and rest breaks to its non-exempt employees in California, among other things. The complaint seeks an unspecified amount of damages and penalties under provisions of the Labor Code, including the Labor Code Private Attorneys General Act. The Company has filed an answer denying all allegations regarding the plaintiff’s claims and asserting various defenses. The Company is currently in the discovery phase of this case.  As the ultimate outcome of this matter is uncertain no amounts have been accrued by the Company as of the date of this report. Depending on the actual outcome of this case, provisions could be recorded in the future which may have a material adverse effect on the Company’s operating results.

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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 management 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.

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, the Company's 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 nine months ended September 30, 2014, under this plan.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5  - Other Information

Adoption of Amended and Restated Bylaws

On November 5, 2014, the Company’s Board of Directors adopted the Amended and Restated Bylaws of MRV Communications, Inc. (the “Amended and Restated Bylaws”).  The Amended and Restated Bylaws adopt advance notice procedures requiring that for any stockholder to nominate persons for election to the Company’s Board of Directors or to propose other business for an annual meeting of the Company, such stockholder must notify the Company no later than 90 days and no earlier than 120 days prior to the anniversary of the prior year’s annual meeting.  The Amended and Restated Bylaws specify the information and documents that must be included in such stockholder notice. 

The Amended and Restated Bylaws also provide procedures governing stockholder proposals to call a special meeting of the stockholders.  For any stockholder to nominate persons for election to the Company’s Board of Directors or to propose other business for a special meeting of stockholders, such stockholder must notify the Company no later than 90 days and no earlier than 120 days prior to the special meeting.  The Amended and Restated Bylaws specify the information and documents that must be included in such stockholder notice. 

The foregoing description of the Amended and Restated Bylaws is not complete and is subject to and qualified in its entirety by reference to the Amended and Restated Bylaws, a copy of which is attached as Exhibit 3.1, and which Amended and Restated Bylaws are incorporated herein by reference. 

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Item 6. Exhibits

(a)    Exhibits

No.	Description
3.1	Amended and Restated Bylaws of MRV Communications, Inc. (as amended through November 5, 2014)
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)

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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 November 5, 2014.

MRV COMMUNICATIONS, INC.

By: /s/ David S. Stehlin

David S. Stehlin

Chief Executive Officer

Principal Executive Officer

By: /s/ Mark J. Bonney

Mark J. Bonney

Chief Financial Officer

Principal Financial Officer

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EX-3.1

Exhibit 3.1

AMENDED AND RESTATED
BYLAWS
OF
MRV COMMUNICATIONS, INC.

(as amended through November 5, 2014)

2816580-2

Exhibit 3.1

TABLE OF CONTENTS

		Page
ARTICLE I	Offices	1
Section 1.	Registered Office	1
Section 2.	Other Offices	1
ARTICLE II	Meetings of Stockholders	1
Section 1.	Annual Meetings	1
Section 2.	Special Meetings	1
Section 3.	Notice of Meetings	1
Section 4.	Quorum and Manner of Acting	2
Section 5.	Organization of Meetings	2
Section 6.	Voting; Proxies	3
Section 7.	Consent in Lieu of Meeting	4
Section 8.	Inspectors	4
Section 9.	List of Stockholders Entitled to Vote	4
Section 10.	Notice of Stockholder Business and Nominations	5
Section 11.	Special Meeting Procedures	9
ARTICLE III	Board of Directors	11
Section 1.	General Powers	11
Section 2.	Number and Term of Office	11
Section 3.	Election	12
Section 4.	Meetings	12
Section 5.	Compensation	13
Section 6.	Resignation, Removal and Vacancies	13
Section 7.	Committees	14
Section 8.	Chairperson of the Board	14
Section 9.	Vice-Chairperson of the Board	14
ARTICLE IV	Officers	15
Section 1.	Election and Appointment and Term of Office	15
Section 2.	Duties and Functions	15
Section 3.	Resignation, Removal and Vacancies	16
ARTICLE V	Waiver of Notices; Place of Meetings	16
Section 1.	Waiver of Notices	16
Section 2.	Place of Meetings	16
ARTICLE VI	Execution and Delivery of Documents Deposits; Proxies; Books and Records	17
Section 1.	Execution and Delivery of Documents; Delegation	17
Section 2.	Deposits	17
Section 3.	Proxies in Respect of Stock or Other Securities of Other Corporations	17
Section 4.	Books and Records	17
ARTICLE VII	Capital Stock; Stock Record; Transfer and Registration; Replacing Lost, Stolen or Destroyed Certificates; Record Date; etc	18

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(continued)

		Page
Section 1.	Certificates for Stock	18
Section 2.	Stock Record	18
Section 3.	Transfer of Stock	18
Section 4.	Lost, Stolen or Destroyed Certificates	19
Section 5.	Regulations	19
Section 6.	Fixing Date for Determination of Stockholders of Record	19
ARTICLE VIII	Seal	20
ARTICLE IX	Indemnification	20
Section 1.	Actions, Etc. Other Than by or in the Right of the Corporation	20
Section 2.	Actions Etc., by or in the Right of the Corporation	21
Section 3.	Limitation on Indemnification	21
Section 4.	Indemnification Against Expenses of Successful Party	21
Section 5.	Advances of Expenses	21
Section 6.	Right to Indemnification; Procedure Upon Application	21
Section 7.	Other Right and Remedies; Continuation of Rights	22
Section 8.	Other Indemnitees	22
Section 9.	Insurance	22
Section 10.	Constituent Corporations	22
Section 11.	Savings Clause	23
Section 12.	Other Enterprises, Fines, and Serving at Corporation’s Request	23
ARTICLE X	Dividends	23
ARTICLE XI	Fiscal Year	23
ARTICLE XII	Amendments	23

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2816580-2

Exhibit 3.1

AMENDED AND RESTATED
BYLAWS
OF
MRV COMMUNICATIONS, INC.

ARTICLE I
Offices

SECTION 1.Registered Office. The registered office of MRV Communications, Inc. (the “Corporation”) in the State of Delaware, is 2711 Centerville Road Suite 400, Wilmington, New Castle County, Delaware 19808. The registered agent at such address is Corporation Service Company.

SECTION 2.Other Offices. The Corporation may also have offices at such other places either within or without the State of Delaware as the Board of Directors (the “Board”) may from time to time determine.

ARTICLE II
Meetings of Stockholders

SECTION 1.Annual Meetings. If required by applicable law, the annual meeting of the stockholders of the Corporation for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held at such date and hour and place, if any, as the Board may determine. At the annual meeting any business that is proper under Delaware law may be transacted whether or not the notice of such meeting shall have contained a reference thereto, except where such a reference is required by law, the Certificate of Incorporation or these Bylaws.

SECTION 2.Special Meetings. A special meeting of the stockholders for any purpose or purposes may be called at any time by the Board, the Chairperson of the Board or the Chief Executive Officer or by the Chief Executive Officer or Secretary upon the written request of stockholders holding of record at least ten percent (10%) of the outstanding shares of any class of stock entitled to vote at such meeting. Such meeting shall be held in accordance with the procedures of Article II, Section 11. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.

SECTION 3.Notice of Meetings. Except as otherwise expressly required by these Bylaws or by law, notice of each meeting of the stockholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at the meeting as of the record date for determining the stockholders entitled to notice of the meeting by delivering a notice thereof to such stockholder, directed to such stockholder at such stockholder’s address as it appears on the stock records of the Corporation. Every such notice shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting) and, in the case of a special meeting, the

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Exhibit 3.1

purpose or purposes for which the meeting is called. Such notice shall be deemed to be given (i) if mailed, when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation, (ii) if sent by electronic mail, when delivered to an electronic mail address at which the stockholder has consented to receive such notice; and (iii) if posted on an electronic network together with a separate notice to the stockholder of such specific posting, upon the later to occur of (A) such posting and (B) the giving of such separate notice of such posting. Any meeting of stockholders, annual or special, may be adjourned from time to time. Notice of any adjourned meeting of the stockholders shall not be required to be given if the time and place, if any, of such adjourned meeting or means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting, are announced at the meeting at which the adjournment is taken and a new record date for the adjourned meeting is not thereafter fixed. If the adjournment is for more than 30 days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, the Board shall fix a new record date for notice of such adjourned meeting, and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date for notice of such adjourned meeting. Notice shall be deemed to have been given to all stockholders of record who share an address if notice is given in accordance with the “householding” rules set forth in Rule 14a-3(e) under the Securities Exchange Act of 1934 and Section 233 of the Delaware General Corporation Law.

SECTION 4.Quorum and Manner of Acting. Except as otherwise expressly required by law, if stockholders holding of record a majority of the voting power of the shares of stock of the Corporation issued, outstanding and entitled to be voted at the particular meeting shall be present in person or by proxy, a quorum for the transaction of business at any meeting of the stockholders shall exist. In the absence of a quorum at any such meeting or any adjournment or adjournments thereof, the chairperson of the meeting may adjourn such meeting from time to time until stockholders holding the amount of stock requisite for a quorum shall be present in person or by proxy. At any such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called. Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation or any subsidiary of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity.

SECTION 5.Organization of Meetings. At each meeting of the stockholders, one of the following shall act as chairperson of the meeting and preside thereat, in the following order of precedence :

(i)the Chairperson of the Board;

(ii)the Vice-Chairperson of the Board

(iii)the Chief Executive Officer;

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Exhibit 3.1

(iv)any officer or a stockholder of record designated by the Board.

The Secretary of the Corporation (the “Secretary”) or, if the Secretary shall be absent from or presiding over the meeting in accordance with the provisions of this Section, the person whom the chairperson of the meeting shall appoint, shall act as secretary of the meeting and keep the minutes thereof. The Board may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board, the chairperson of the meeting of stockholders shall have the right and authority to convene and (for any or no reason) to adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairperson of the meeting, are appropriate for the proper conduct of the meeting.

Such rules, regulations or procedures, whether adopted by the Board or prescribed by the chairperson of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders entitled to vote at the meeting, their duly authorized and constituted proxies or such other persons as the presiding person of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. The chairperson of any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if such chairperson should so determine, such chairperson shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board or the chairperson of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure .

SECTION 6.Voting; Proxies. Except as otherwise provided in the Certificate of Incorporation, each stockholder shall, at each meeting of the stockholders, be entitled to one vote in person or by proxy for each share of stock of the Corporation which has voting power on the matter in question. Each stockholder entitled to vote at a meeting of stockholders or to express consent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by delivering to the Secretary of the Corporation a revocation of the proxy or a new proxy bearing a later date. Voting at meetings of stockholders need not be by written ballot. At all meetings of the stockholders at which a quorum is present, all matters, except as otherwise provided in the Certificate of Incorporation, in these Bylaws, the rules and regulations of any stock exchange applicable to the Corporation or by applicable law or pursuant to any regulation applicable to the Corporation or its securities, shall be decided by the vote of the holders of a majority in voting power of the shares present in person or by proxy and entitled to vote thereon.

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Exhibit 3.1

SECTION 7.Consent in Lieu of Meeting. Unless otherwise restricted by the Certificate of Incorporation, any action required to be taken or any other action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, provided that prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for notice of such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Corporation.

SECTION 8.Inspectors. The Corporation may, and shall if required by law, appoint one or more inspectors. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. In the event that no inspector so appointed or designated is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector or inspectors so appointed or designated shall (i) ascertain the number of shares of capital stock of the Corporation outstanding and the voting power of each such share, (ii) determine the shares of capital stock of the Corporation represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares of capital stock of the Corporation represented at the meeting and such inspectors’ count of all votes and ballots. Such certification and report shall specify such other information as may be required by law. In determining the validity and counting of proxies and ballots cast at any meeting of stockholders of the Corporation, the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for an office at an election may serve as an inspector at such election.

SECTION 9.List of Stockholders Entitled to Vote. The officer who has charge of the stock ledger shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting (provided, however, if the record date for determining the stockholders entitled to vote is less than ten (10) days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date), arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting at least ten (10) days prior to the meeting on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of meeting or (ii) during ordinary business hours at the principal place of business of the Corporation. If the meeting is to be held at a place, then a list of stockholders entitled to vote at the meeting shall be produced and kept at the time and place of the meeting during the whole time thereof and may be examined by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall

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Exhibit 3.1

also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders required by this Section 9 or to vote in person or by proxy at any meeting of stockholders.

SECTION 10.Notice of Stockholder Business and Nominations.

(A)Annual Meetings of Stockholders.

(i)Nominations of persons for election to the Board and the proposal of other business to be considered by the stockholders may be made at an annual meeting of stockholders only (a) pursuant to the Corporation’s notice of meeting (or any supplement thereto), (b) by or at the direction of the Board or (c) by any stockholder of the Corporation who was a stockholder of record of the Corporation at the time the notice provided for in paragraph (A)(ii) of this Section 10 is delivered to the Secretary of the Corporation, who is entitled to vote at the meeting and who complies with the notice procedures set forth in paragraph (A)(ii) of this Section 10.

(ii)For any nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(i) of this Section 10, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and any such proposed business (other than the nominations of persons for election to the Board) must constitute a proper matter for stockholder action. To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90^th) day, nor earlier than the close of business on the one hundred twentieth (120^th) day, prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or more than seventy (70) days after such anniversary date, notice by the stockholder must be so delivered not earlier than the close of business on the one hundred twentieth (120^th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90^th) day prior to such annual meeting or the tenth (10^th) day following the day on which public announcement of the date of such meeting is first made by the Corporation. Notwithstanding the foregoing, in the case of the first annual meeting following the adoption of this Section 10, a stockholder’s notice, to be timely, shall be delivered to the Secretary at the principal executive offices of the Corporation before the close of business on March 15, 2015. In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above. Such stockholder’s notice shall set forth: (a) as to each person whom the stockholder proposes to nominate for election as a director (i) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to and in accordance with Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, and (ii) such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of the proposal

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Exhibit 3.1

or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the Bylaws of the Corporation, the language of the proposed amendment), the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner, (iii) a description of any agreement, arrangement or understanding with respect to the nomination or proposal between or among such stockholder and/or such beneficial owner, any of their respective affiliates or associates, and any others acting in concert with any of the foregoing, including, in the case of a nomination, the nominee(s), (iv) a description of any agreement, arrangement or understanding (including any derivative or short positions, profit interests, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the stockholder’s notice by, or on behalf of, such stockholder and such beneficial owners, whether or not such instrument or right shall be subject to settlement in underlying shares of capital stock of the Corporation, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such stockholder or such beneficial owner, with respect to securities of the Corporation, (v) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination, (vi) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends (a) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal or elect the nominee(s) and/or (b) otherwise to solicit proxies or votes from stockholders in support of such proposal or nomination, and (vii) any other information relating to such stockholder and beneficial owner, if any, required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in an election contest pursuant to and in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder. The foregoing notice requirements of this paragraph (A)(ii) of this Section 10 shall be deemed satisfied by a stockholder with respect to business other than a nomination if the stockholder has notified the Corporation of his, her or its intention to present a proposalat an annual meeting in compliance with applicable rules and regulations promulgated under the Exchange Act and such stockholder’s proposal has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such annual meeting. The Corporation may require any proposed nominee to furnish such other information as the Corporation may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation.

(iii)Notwithstanding anything in the second sentence of paragraph (A)(ii) of this Section 10 to the contrary, in the event that the number of directors to be elected to the Board at the annual meeting is increased effective after the time period for which nominations would otherwise be due under paragraph (A)(ii) of this Section 10 and there is no public announcement by the Corporation naming the nominees for the additional directorships at least one hundred (100)

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Exhibit 3.1

days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Section 10 shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10^th) day following the day on which such public announcement is first made by the Corporation.

(iv)Any stockholder or stockholders who bring any nominations or other business before an annual meeting pursuant to clause (c) of paragraph (A)(i) of this Section 10 shall further update and supplement the information previously provided to the Corporation pursuant to paragraph (A)(ii) of this Section 10, if necessary, so that the information provided or required to be provided in such notice shall be true and correct as of the record date for the annual meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for the annual meeting (in the case of the update and supplement required to be made as of the record date), and not later than eight (8) business days prior to the date for the meeting, if practicable (or, if not practicable, the first practicable date prior to the date for the meeting), or any adjournment or postponement thereof (in the case of the update and supplement required to be made as of ten (10) business days prior to the annual meeting or any adjournment or postponement thereof).

(B)Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting. In the event the Corporation holds an election of directors at a special meeting of stockholders in lieu of an election of directors at an annual meeting of stockholders, nominations of persons for election to the Board may only be made at such special meeting of stockholders (1) by or at the direction of the Board or (2) by any stockholder of the Corporation who is a stockholder of record at the time the notice provided for in paragraph (B) of this Section 10 is delivered to the Secretary of the Corporation, who is entitled to vote at the meeting and upon such election and who complies with the notice procedures set forth in paragraph (B) of this Section 10. For nominations to be properly brought before a special meeting by a stockholder pursuant to clause (2) of paragraph (B) of this Section 10, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, such notice shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the one hundred twentieth (120^th) day prior to such special meeting and not later than the close of business on the later of the ninetieth (90^th) day prior to such special meeting or the tenth (10^th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above. Such stockholder’s notice shall include the same information that is required in a stockholder’s notice of a nomination of directors at an annual meeting as set forth in paragraph (A)(ii) of this Section 10. The Corporation may require any proposed nominee to furnish such other information as the Corporation may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation. Any stockholder or stockholders who bring any nominations before a special meeting pursuant to clause (2) of paragraph (B) of this Section 10

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Exhibit 3.1

shall further update and supplement the information previously provided to the Corporation pursuant to paragraph (B) of this Section 10, if necessary, so that the information provided or required to be provided in such notice shall be true and correct as of the record date for the special meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for the special meeting (in the case of the update and supplement required to be made as of the record date), and not later than eight (8) business days prior to the date for the meeting, if practicable (or, if not practicable, the first practicable date prior to the date for the meeting), or any adjournment or postponement thereof (in the case of the update and supplement required to be made as of ten (10) business days prior to the special meeting or any adjournment or postponement thereof).

(C)General.

(i)Except as otherwise expressly provided in any applicable rule or regulation promulgated under the Exchange Act, only such persons who are nominated in accordance with the procedures set forth in this Article II shall be eligible to be elected at an annual or special meeting of stockholders of the Corporation to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Article II. Except as otherwise provided by law, the chairman of the meeting shall have the power and duty (a) to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Article II (including whether the stockholder or beneficial owner, if any, on whose behalf the nomination or proposal is made, solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies or votes in support of such stockholder’s nominee or proposal in compliance with such stockholder’s representation as required by clause (A)(ii)(c)(vi) of this Section 10 or clause (A)(iii)(f) of Article II, Section 11, as applicable) and (b) if any proposed nomination or business was not made or proposed in compliance with this Article II, to declare that such nomination shall be disregarded or that such proposed business shall not be transacted. Notwithstanding the provisions of this Article II, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or proposed business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Article II, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.

(ii)For purposes of this Article II, “public announcement” shall include disclosure in a press release reported by the Dow Jones News Service, Associated Press or other national news service or in a document publicly filed by the Corporation with the Securities and

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Exhibit 3.1

Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder.

(iii)Notwithstanding the provisions of this Article II, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder with respect to the matters set forth in this Article II relating to the submission of nominations and business proposals at a meeting of stockholders; provided however, that any references in these Bylaws to the Exchange Act or the rules and regulations promulgated thereunder are not intended to and shall not limit any requirements applicable to nominations or proposals as to any other business to be considered pursuant to this Article II (including paragraphs (A)(i)(c) and (B) of this Section 10 and Article II, Section 11, as applicable), and compliance with paragraphs (A)(i)(c) and (B) of this Section 10 and Article II, Section 11, as applicable, shall be the exclusive means for a stockholder to make nominations or submit other business (other than, as provided in the penultimate sentence of paragraph (A)(ii) of this Section 10, business other than nominations brought properly under and in compliance with Rule 14a-8 of the Exchange Act, as may be amended from time to time). Nothing in this Article II shall be deemed to affect any rights (a) of stockholders to request inclusion of proposals or nominations in the Corporation’s proxy statement pursuant to applicable rules and regulations promulgated under the Exchange Act or (b) of the holders of any series of Preferred Stock to elect directors pursuant to any applicable provisions of the certificate of incorporation.

SECTION 11.Special Meeting Procedures.

(A)A special meeting of the stockholders shall not be called pursuant to a stockholder request under Article II, Section 2 unless a stockholder or stockholders of record (each a “Requesting Person”) holding of record, in the aggregate, at least ten percent (10%) (the “Requisite Percentage”) of the voting power of any class of stock entitled to vote at such meeting provide one or more demands to call such special meeting in writing and in proper form to the Secretary of the Corporation at the principal executive offices of the Corporation. Only stockholders of record on the date of such demand shall be entitled to demand that the Corporation call a special meeting of the stockholders pursuant to Article II, Section 2. To be in proper form for purposes of this Section 11, a demand to call a special meeting shall set forth:

(i)the business proposed to be conducted at the special meeting,

(ii)the text of the proposal or business (including the text of any resolutions proposed for consideration), and

(iii)with respect to any stockholder or stockholders submitting a demand to call a special meeting (except for any stockholder that has provided such demand in response to a solicitation made pursuant to, and in accordance with, Section 14(a) of the Exchange Act by way of a solicitation statement filed on Schedule 14A) (a “Solicited Stockholder”), (a) the name and address of such stockholder, as they appear on the Corporation’s books, and the beneficial owner, if any, on whose behalf the demand is submitted, (b) the class or series and number of shares of capital stock of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner, (c) a description of any agreement, arrangement or understanding with

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respect to the proposal between or among such stockholder and/or such beneficial owner, any of their respective affiliates or associates, and any others acting in concert with any of the foregoing, (d) a description of any agreement, arrangement or understanding (including any derivative or short positions, profit interests, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the stockholder’s demand by, or on behalf of, such stockholder and such beneficial owners, whether or not such instrument or right shall be subject to settlement in underlying shares of capital stock of the Corporation, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such stockholder or such beneficial owner, with respect to securities of the Corporation, (e) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business, (f) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal and/or (y) otherwise to solicit proxies or votes from stockholders in support of such proposal, and (g) any other information relating to such stockholder and beneficial owner, if any, required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal pursuant to and in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder. In the event the business proposed by the stockholder to be conducted at the special meeting includes the appointment of director nominees to fill any vacancies or newly created directorships on the Board, the demand to call the special meeting shall also include the information relating to such nominees that is required under clause (a) of the fifth sentence of paragraph (A)(ii) of Article II, Section 10. The Corporation may require any such proposed nominee to furnish such other information as the Corporation may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation.

A Requesting Person may revoke a demand to call a special meeting by written revocation delivered to the Secretary at any time prior to the special meeting. If any such revocation(s) are received by the Secretary after the Secretary’s receipt of written demands from the holders of the Requisite Percentage of stockholders, and as a result of such revocation(s), there no longer are unrevoked demands from the Requisite Percentage of stockholders to call a special meeting, the Board shall have the discretion to determine whether or not to proceed with the special meeting.

(B)The Secretary shall not accept, and shall consider ineffective, a written demand from a stockholder to call a special meeting (i) that does not comply with this Section 11, (ii) that relates to an item of business to be transacted at such meeting that is not a proper subject for stockholder action under applicable law, (iii) that relates to an item of business that is identical or substantially similar to an item of business (a “Similar Item”) that will be submitted for stockholder approval at any stockholder meeting to be held on or before the date that is one hundred twenty (120) days after the Secretary receives such demand, (iv) if a Similar Item has been presented at (x) an annual meeting or (y) any special meeting, in each case, held within one hundred twenty (120) days prior to receipt by the Secretary of such demand to call a special meeting; or (v) that calls for the election of directors to the Board in lieu of an election of directors at an annual meeting.

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(C)After receipt of one or more written demands in proper form and in accordance with this Section 11 from a stockholder or stockholders holding the Requisite Percentage, the Board shall duly call, and determine the place, date and time of, a special meeting of stockholders for the purpose or purposes and to conduct the business specified in the demands received by the Corporation. Notwithstanding anything in these Bylaws to the contrary, the Board may submit its own proposal or proposals for consideration at such a special meeting. The record date for determining the stockholders entitled to be given notice of and to vote at such a special meeting shall be fixed by the Corporation in accordance with Article VII, Section 6 of these Bylaws. The Board shall provide written notice of such special meeting to the stockholders in accordance with Article II, Section 3 of these Bylaws.

(D)In connection with a special meeting called in accordance with Article II, Section 2 and this Section 11, the stockholder or stockholders (except for any Solicited Stockholder) who delivered a demand to call a special meeting to the Secretary shall further update and supplement the information previously provided to the Corporation in connection with such demand, if necessary, so that the information provided or required to be provided in such demand pursuant to this Section 11 shall be true and correct as of the record date for the special meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for the special meeting (in the case of the update and supplement required to be made as of the record date), and not later than eight (8) business days prior to the date for the meeting, if practicable (or, if not practicable, the first practicable date prior to the date for the meeting), or any adjournment or postponement thereof (in the case of the update and supplement required to be made as of ten (10) business days prior to the special meeting or any adjournment or postponement thereof).

(E)Notwithstanding anything in these Bylaws to the contrary, the Secretary shall not be required to call a special meeting pursuant to Article II, Section 2 or this Section 11 except in accordance with this Section 11. If the Board shall determine that any demand to call and hold a special meeting was not properly made in accordance with this Section 11, or shall determine that the stockholder or stockholders submitting a demand to call the special meeting have not otherwise complied with this Section 11, then the Board shall not be required to fix a record date or to call and hold the special meeting. In addition to the requirements of this Section 11, each Requesting Person shall comply with all requirements of applicable law, including all requirements of the Exchange Act, with respect to any demand to call a special meeting.

ARTICLE III
Board of Directors

SECTION 1.General Powers. The property, business, affairs and policies of the Corporation shall be managed by or under the direction of the Board of Directors.

SECTION 2.Number and Term of Office. The number of directors of the Corporation shall not be less than three (3) and the number of directors shall be fixed from time to time by resolution of the Board. Each of the directors of the Corporation shall hold office until the annual meeting after such director’s election or until such director’s successor shall be elected and shall

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qualify or until such director’s earlier death, resignation, disqualification or removal in the manner hereinafter provided.

SECTION 3.Election. Except as may be otherwise required by the Certificate of Incorporation, each director shall be elected by the vote of the majority of the votes cast (meaning the number of shares voted “for” a nominee must exceed the number of shares voted “against” such nominee) at any meeting for the election of directors at which a quorum is present (with “abstentions” and “broker non-votes” not counted as a vote cast either “for” or “against” that director’s election), provided that the directors shall be elected by a plurality of the votes cast (instead of by a majority of votes cast “for” or “against” a nominee) at any meeting at which a quorum is present for which (i) the Corporation is on notice that a stockholder intends to nominate a director or directors and (ii) such proposed nomination has not been withdrawn by such stockholder on or prior to the tenth day preceding the date the Corporation first mails its notice of meeting for such meeting to the stockholders.

SECTION 4.Meetings.

(B)Annual Meeting. The annual meeting of the Board, for the purpose of organization, the election of officers and the transaction of other business, shall be held at the place of and immediately following final adjournment of the annual meeting of stockholders or the special meeting in lieu thereof.

(C)Regular Meetings. Regular meetings of the Board or any committee thereof shall be held as the Board or such committee shall from time to time determine.

(D)Special Meetings. Special meetings of the Board may be called by order of the Chairperson of the Board, the Chief Executive Officer or by any two of the directors then in office.

(E)Notice of Meetings. No notice of regular meetings of the Board or of any committee thereof or of any adjourned meeting thereof need be given. The Secretary shall give prior notice to each director of the time and place of each special meeting of the Board or adjournment thereof. Such notice shall be given to each director not less than forty-eight hours before the meeting if given in person, by telephone, by email or by other form of electronic transmission and, if given by mail, post marked at least four (4) days prior to the special meeting and sent to such director at the director’s residence or usual business address. The purposes of a meeting of the Board or any committee thereof need not be specified in the notice thereof.

(F)Time and Place of Meetings. Regular meetings of the Board or any committee thereof shall be held at such times and place or places as the Board or such committee may from time to time determine. Special meetings of the Board or any committee thereof shall be held at such times and places as the callers thereof may determine.

(G)Quorum and Manner of Acting. Except as otherwise expressly required by these Bylaws or by law, a majority of the directors and a majority of the members of any committee shall be present in person at any meeting thereof in order to constitute a quorum for the transaction

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of business at such meeting, and the vote of a majority of the directors present at any such meeting at which a quorum is present shall be necessary for the passage of any resolution or for an act to be the act of the Board or such committee. In the absence of a quorum, a majority of the directors present thereat may adjourn such meeting either finally or from time to time to another time and place until a quorum shall be present thereat. In the latter case notice of the adjourned time and place shall be given as aforesaid to all Directors.

(H)Organization of Meetings. At each meeting of the Board, one of the following shall act as chairperson of the meeting and preside thereat, in the following order of precedence:

(iv)the Chairperson of the Board;

(v)the Vice-Chairperson of the Board;

(vi)the Chief Executive Officer ;

(vii)any director chosen by a majority of the directors present thereat.

The Secretary or, in case of the Secretary’s absence, the person whom the chairperson of the meeting shall appoint, shall act as secretary of such meeting and keep the minutes thereof. The order of business at each meeting of the Board shall be determined by the chairperson of such meeting.

(I)Consent in Lieu of Meeting. Any action required or permitted to be taken at any meeting of the Board or any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in a writing or writings or by electronic transmissions and such writing or writings or electronic transmissions are filed with the minutes of the proceedings of the Board or committee. Such consents shall be treated for all purposes as a vote at a meeting.

(J)Action by Communications Equipment. The directors may participate in a meeting of the Board or any committee thereof by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting.

SECTION 5.Compensation. Each director, in consideration of serving as such, may receive from the Corporation such amount per annum and such fees and expenses incurred for attendance at meetings of the Board or of any committee, or both, as the Board may from time to time determine. Nothing contained in this Section shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

SECTION 6.Resignation, Removal and Vacancies. Any director may resign at any time by giving notice of such resignation to the Chairperson of the Board, the Chief Executive Officer or the Secretary.

Any such resignation shall take effect at the time specified therein or, if not specified therein, upon receipt. Unless otherwise specified in the resignation, its acceptance shall not be necessary

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to make it effective. Any or all of the directors may be removed at any time for cause or without cause at a meeting of stockholders by vote of a majority of the voting power of the shares then entitled to vote at an election of directors.

If the office of any director becomes vacant at any time by reason of death, resignation, retirement, disqualification, removal from office or otherwise, or if any new directorship is created by any increase in the authorized number of directors, a majority of the directors then in office, though less than a quorum, or the sole remaining director, may appoint a successor or fill the newly created directorship and the director so appointed shall hold office, subject to the provisions of these Bylaws, until the next annual election of directors and such director’s successor shall be duly elected and shall qualify. If one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so prospectively resigned, shall have the power to fill the vacancy or vacancies arising from such resignation, the director or directors thereby appointed to take office when such resignation or resignations shall become effective, and each director so appointed shall hold office as herein provided in the filling of other vacancies.

SECTION 7.Committees. The Board may, by a majority of the whole Board designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it, but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease, or exchange of all or substantially all of the Corporation’s property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the bylaws of the Corporation; and, unless the resolution or bylaws expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Unless the Board otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article II of these Bylaws.

SECTION 8.Chairperson of the Board. The Board may elect from among its members a Chairperson of the Board. The Chairperson of the Board, if any, shall preside at all meetings of the Board and of the stockholders at which he or she shall be present. The Chairperson of the Board shall have and may exercise such additional powers as are, from time to time, assigned by the Board and as may be provided by law.

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SECTION 9.Vice-Chairperson of the Board. The Board may elect from among its members a Vice-Chairperson of the Board. The Vice- Chairperson of the Board, if any, shall assume the duties of the Chairperson of the Board should the Chairperson of the Board be absent.

ARTICLE IV
Officers

SECTION 1.Election and Appointment and Term of Office. The officers of the Corporation shall be a Chief Executive Officer, one or more Presidents, such number, if any, of Vice Presidents (including any Executive or Senior Vice Presidents) as the Board may from time to time determine, a Secretary and a Treasurer. Each such officer shall hold office until the first meeting of the Board after the annual meeting of stockholders next succeeding his or her election and until his or her successor is elected and qualified or until his or her earlier resignation or removal. Two or more offices may be held by the same person. The Chief Executive Officer and the Presidents may, but need not, be chosen from among the Directors. The Board may elect or appoint (and may authorize the Chief Executive Officer to appoint) such other officers (including one or more Assistant Secretaries and Assistant Treasurers) as it deems necessary who shall have such authority and shall perform such duties as the Board or the Chief Executive Officer may from time to time prescribe.

SECTION 2.Duties and Functions.

(A)Chief Executive Officer. The Chief Executive Officer, subject to the control of the Board, shall act in a general executive capacity and shall control the business and affairs of the Corporation. In the absence of the Chairperson of the Board and the Vice-Chairperson of the Board, the Chief Executive Officer shall preside at all meetings of the Board and of the stockholders. He or she may also preside at any such meeting attended by the Chairperson of the Board if he or she is so designated by the Chairperson of the Board. Subject to the requirements of the Certificate of Incorporation, the Chief Executive Officer shall have the power to appoint and remove subordinate officers, agents and employees, except those elected by the Board. The Chief Executive Officer shall keep the Board fully informed and shall consult with them concerning the business of the Corporation.

(B)President. The President or Presidents shall have such duties as may be determined from time to time by resolution of the Board not inconsistent with these Bylaws and, in the absence or incapacity of the Chief Executive Officer, a President shall also perform the duties of that office. In general, subject to the supervision of the Chief Executive Officer, the President or Presidents shall perform those duties normally incident to the office of President and such other duties as may be prescribed by the Board from time to time.

(C)Vice Presidents. Each Vice President shall have such powers and duties as shall be prescribed by the Board.

(D)Secretary. The Secretary shall attend and keep the records of all meetings of the stockholders, the Board and all other committees, if any, in one or more books kept for that purpose. The Secretary shall give or cause to be given due notice of all meetings in accordance with these Bylaws and as required by law. The Secretary shall notify the several officers of the

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Corporation of all action taken by the Board concerning matters relating to their duties and shall transmit to the appropriate officers copies of all contracts and resolutions approved by the Board. The Secretary shall be custodian of the seal of the Corporation and of all contracts, deeds, documents and other corporate papers, records (except financial and accounting records) and indicia of title to properties owned by the Corporation as shall not be committed to the custody of another officer by the Board or by the Chief Executive Officer. The Secretary shall affix or cause to be affixed the seal of the Corporation to instruments requiring the same when the same have been signed on behalf of the Corporation by a duly authorized officer. The Secretary shall perform all duties and have all powers incident to the office of Secretary and shall perform such other duties as shall be assigned by the Board or the Chief Executive Officer. The Secretary may be assisted by one or more Assistant Secretaries, who shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary.

(E)Treasurer. The Treasurer shall have charge and custody of the corporate funds and other valuable effects, including securities. The Treasurer shall keep true and full accounts of all assets, liabilities, receipts and disbursements and other transactions of the Corporation and shall cause regular audits of the books and records of the Corporation to be made. The Treasurer shall perform all duties and have all powers incident to the office of Treasurer and shall perform such other duties as shall be assigned by the Board or the Chief Executive Officer. The Treasurer may be assisted by one or more Assistant Treasurers, who shall, in the absence or disability of the Treasurer, perform the duties or exercise the powers of the Treasurer.

SECTION 3.Resignation, Removal and Vacancies. Any officer may resign at any time by giving notice of such resignation to the Chief Executive Officer or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein or, if not specified therein, upon receipt.

Any officer, agent or employee may be removed, with or without cause, at any time by the Board or by the officer who made such appointment.

A vacancy in any office may be filled for the unexpired portion of the term in the same manner as provided in these Bylaws for election or appointment to such office.

ARTICLE V
Waiver of Notices; Place of Meetings

SECTION 1.Waiver of Notices. Whenever notice is required to be given by the Certificate of Incorporation, by these Bylaws or by law, a waiver thereof in writing or by electronic transmission, given by the person entitled to such notice, shall be deemed equivalent to notice, whether given before or after the time specified therein. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except where the person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

SECTION 2.Place of Meetings. Any meeting of the Stockholders, the Board or any committee of the Board may be held within or outside the State of Delaware.

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ARTICLE VI
Execution and Delivery of Documents Deposits;
Proxies; Books and Records

SECTION 1.Execution and Delivery of Documents; Delegation. The Board shall designate the officers, employees and agents of the Corporation who shall have power to execute and deliver deeds, contracts, mortgages, bonds, debentures, checks, drafts and other orders for the payment of money and other documents for and in the name of the Corporation and may authorize such officers, employees and agents to delegate such power (including authority to redelegate) by written instrument to other officers, employees or agents of the Corporation.

SECTION 2.Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation or otherwise as the Board or the Chief Executive Officer or any other officer, employee or agent of the Corporation to whom power in that respect shall have been delegated by the Board or these Bylaws shall select.

SECTION 3.Proxies in Respect of Stock or Other Securities of Other Corporations. The Chief Executive Officer or any officer of the Corporation designated by the Board shall have the authority from time to time to appoint and instruct an agent or agents of the Corporation to exercise in the name and on behalf of the Corporation the powers and rights which the Corporation may have as the holder of stock or other securities in any other corporation or other entity, to vote or consent in respect of such stock or securities and to execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal or otherwise, such written proxies, powers of attorney or other instruments as the Chief Executive Officer or such officer may deem necessary or proper in order that the Corporation may exercise such powers and rights.

SECTION 4.Books and Records. The books and records of the Corporation may be kept at such places within or without the State of Delaware as the Board may from time to time determine.

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ARTICLE VII
Capital Stock; Stock Record; Transfer and
Registration; Replacing Lost, Stolen or
Destroyed Certificates; Record Date; etc.

SECTION 1.Certificates for Stock. The shares of the Corporation shall be represented by certificates, provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Every holder of stock represented by certificates shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairperson or Vice Chairperson of the Board, if any, or a President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation certifying the number of shares owned by such holder in the Corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent, or registrar at the date of issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law, the Corporation’s Certificate of Incorporation, these Bylaws, any agreement among stockholders or any agreement between stockholders and the Corporation.

Within a reasonable time after the issuance or transfer of uncertificated stock, the Corporation shall send, or cause its transfer agent to send, to the registered owner thereof a written notice that shall set forth the name of the Corporation, that the Corporation is organized under the laws of the State of Delaware, the name of the stockholder, the number and class (and the designation of the series, if any) of the shares represented, and any restrictions on the transfer of such shares of stock imposed by law, the Corporation’s Certificate of Incorporation, these Bylaws, any agreement among stockholders or any agreement between stockholders and the Corporation.

SECTION 2.Stock Record. A stock record in one or more counterparts shall be kept of the name of the person, firm or corporation owning the stock of the Corporation, the number of shares of stock owned by such stockholder, the date thereof and, in the case of cancellation, the date of cancellation.

SECTION 3.Transfer of Stock. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate or evidence of the issuance of uncertificated shares to the stockholder entitled thereto, cancel the old certificate and record the transaction upon the Corporation’s books. Upon the surrender of any certificate for transfer of stock, such certificate shall at once be conspicuously marked on its face “Cancelled” and filed with the permanent stock records of the Corporation.

Upon the receipt of proper transfer instructions from the registered owner of uncertificated shares, such uncertificated shares shall be cancelled, issuance of new equivalent uncertificated

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shares or certificated shares shall be made to the stockholder entitled thereto and the transaction shall be recorded upon the books of the Corporation. If the Corporation has a transfer agent or registrar acting on its behalf, the signature of any officer or representative thereof may be in facsimile.

The Board may appoint a transfer agent and one or more co-transfer agents and registrar and one or more co-registrars and may make or authorize such agent to make all such rules and regulations deemed expedient concerning the issue, transfer and registration of shares of stock.

SECTION 4.Lost, Stolen or Destroyed Certificates. Any person claiming a share certificate to be lost, stolen or destroyed shall make an affidavit or affirmation of the fact in such manner as the Board may require and shall, if the Board so requires, give the Corporation a bond of indemnity in form and amount, and with one or more sureties satisfactory to the Board, as the Board may require, the Corporation may issue (i) a new certificate or certificates of stock or (ii) uncertificated shares in place of any certificate or certificates previously issued by the Corporation alleged to have been lost, stolen or destroyed.

SECTION 5.Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificates for stock of the Corporation.

SECTION 6.Fixing Date for Determination of Stockholders of Record.

(a)In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If the Board so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith at the adjourned meeting.

(b)In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix a record date, which shall not be more than sixty (60) days prior to such other action. If no such record date is fixed, the record date for determining stockholders

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for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

(c)Unless otherwise restricted by the certificate of incorporation, in order that the Corporation may determine the stockholders entitled to express consent to corporate action in writing without a meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board. If no record date for determining stockholders entitled to express consent to corporate action in writing without a meeting is fixed by the Board, (i) when no prior action of the Board is required by law, the record date for such purpose shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in accordance with applicable law, and (ii) if prior action by the Board is required by law, the record date for such purpose shall be at the close of business on the day on which the Board adopts the resolution taking such prior action.

ARTICLE VIII
Seal

The Board shall provide a corporate seal which shall bear the full name of the Corporation and the year and state of its incorporation.

ARTICLE IX
Indemnification

SECTION 1.Actions, Etc. Other Than by or in the Right of the Corporation. The Corporation shall, to the full extent legally permissible, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including a grand jury proceeding, and all appeals (but excluding any such action, suit or proceeding by or in the right of the Corporation), by reason of the fact that such person is or was a director or executive officer (as hereinafter defined) of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct in question was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that such person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, that such person had reasonable cause to believe that the conduct in question was unlawful. As used in this ARTICLE IX, an “executive officer” of the Corporation is the Chief Executive Officer, President, Treasurer, a Vice President given the title of Executive Vice President, or any officer designated as such pursuant to vote of the Board.

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Exhibit 3.1

SECTION 2.Actions Etc., by or in the Right of the Corporation. The Corporation shall, to the full extent legally permissible, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit, including appeals, by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that such person is or was a director or executive officer of the Corporation as defined in Section 1 of this ARTICLE, or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

SECTION 3.Limitation on Indemnification. Notwithstanding anything in Sections 1 and 2 of this Article IX to the contrary, except as otherwise provided in Section 6.3, the corporation shall be required to indemnify a Covered Person in connection with a proceeding (or part thereof) commenced by such Covered Person only if the commencement of such proceeding (or part thereof) by the Covered Person was authorized in the specific case by the Board of Directors of the corporation.

SECTION 4.Indemnification Against Expenses of Successful Party. Notwithstanding any other provision of this ARTICLE, to the extent that a director or officer of the Corporation has been successful in whole or in part on the merits or otherwise, including the dismissal of an action without prejudice, in defense of any action, suit or proceeding or in defense of any claim, issue or matter therein, such person shall be indemnified against all expenses incurred in connection therewith to the fullest extent permitted by law.

SECTION 5.Advances of Expenses. Expenses incurred by a director or officer in any action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of thereof, if such person, to the extent required by law, shall undertake to repay such amount in the event that it is ultimately determined, as provided herein, that such person is not entitled to indemnification.

SECTION 6.Right to Indemnification; Procedure Upon Application. Any indemnification or advance under Sections 1, 2, 3 or 4 of this ARTICLE shall be made promptly, and, in any event, with respect to indemnification within ninety days and with respect to advancement within sixty days, upon the written request of the person seeking to be indemnified or to have expenses advanced. The right to indemnification or advances as granted by this shall be enforceable by such person in any court of competent jurisdiction, if the claim therefor is denied, in whole or in part, or if no disposition of such claim is made within ninety days.

- 21 -

2816580-2

Exhibit 3.1

SECTION 7.Other Right and Remedies; Continuation of Rights. The indemnification and advancement of expenses provided by this ARTICLE shall not be deemed exclusive of any other rights to which any person seeking indemnification or advancement of expenses may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office. All rights to indemnification or advancement under this ARTICLE shall be deemed to be in the nature of contractual rights bargained for and enforceable by each director and executive officer as defined in Section 1 of this ARTICLE who serves in such capacity at any time while this ARTICLE and other relevant provisions of the General Corporation Law of the State of Delaware and other applicable laws, if any, are in effect. All rights to indemnification under this ARTICLE or advancement of expenses shall continue as to a person who has ceased to be a director or executive officer, and shall inure to the benefit of the heirs, executors and administrators of such a person. Any right to indemnification or to advancement of expenses arising under this ARTICLE shall not be eliminated or impaired by an amendment to or repeal of these Bylaws after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought. The Corporation shall also indemnify any person for attorneys’ fees, costs, and expenses in connection with the successful enforcement of such person’s rights under this ARTICLE to the fullest extent permitted by law.

SECTION 8.Other Indemnitees. The Board may, by general vote or by vote pertaining to a specific officer, employee or agent or class thereof, authorize indemnification of the Corporation’s employees and agents, in addition to those executive officers and to whatever extent it may determine, which may be in the same manner and to the same extent provided above.

SECTION 9.Insurance. Upon resolution passed by the Board, the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this ARTICLE.

SECTION 10.Constituent Corporations. For the purposes of this ARTICLE, references to “the Corporation” shall include, in addition to the resulting corporation, any constituent corporations (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors and officers so that any person who is or was a director or officer of such a constituent corporation or is or was serving at the request of such constituent corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this ARTICLE with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued.

- 22 -

2816580-2

Exhibit 3.1

SECTION 11.Savings Clause. If this ARTICLE or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director, executive officer, and those employees and agents of the Corporation granted indemnification pursuant to Section 7 hereof as to expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including a grand jury proceeding, and all appeals, and any action by the Corporation, to the full extent permitted by any applicable portion of this ARTICLE that shall not have been invalidated or by any other applicable law.

SECTION 12.Other Enterprises, Fines, and Serving at Corporation’s Request. For purposes of this ARTICLE, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to any employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of any employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this ARTICLE.

ARTICLE X
Dividends

Subject to the applicable provision of the Certificate of Incorporation, if any, dividends upon the outstanding shares of the Corporation may be declared by the Board at any regular or special meeting pursuant to law and may be paid in cash, in property, or in shares of the Corporation.

ARTICLE XI
Fiscal Year

The fiscal year of the Corporation shall be determined by resolution of the Board.

ARTICLE XII
Amendments

These Bylaws may be amended, altered or repealed by the Board, subject to the power of the holders of a majority of the outstanding stock of the Corporation entitled to vote in respect thereof, to amend or repeal any Bylaw made by the Board.

- 23 -

2816580-2

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 September 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:	November 5, 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, Mark J. Bonney, certify that:

1. I have reviewed this Quarterly Report of MRV Communications, Inc. on Form 10-Q for the period ended September 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:	November 5, 2014
/s/ Mark J. Bonney
Mark J. Bonney
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 September 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:	November 5, 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 September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark J. Bonney, 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:	November 5, 2014
/s/ Mark J. Bonney
Mark J. Bonney
Chief Financial Officer
(Principal Financial Officer)

XML

Product Warranty (Change in Product Warranty Liability) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 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	52
Total	$ 612

XML

Segment Reporting and Geographic Information (Balance Sheet and Statement of Cash Flow Information) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Segment Reporting Information [Line Items]
Additions to Fixed Assets	$ 1,914	$ 2,738
Assets	118,883		127,947
Network Equipment [Member]
Segment Reporting Information [Line Items]
Additions to Fixed Assets	1,736	2,679
Assets	42,457		48,955
Network Integration [Member]
Segment Reporting Information [Line Items]
Additions to Fixed Assets	95	53
Assets	58,259		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	$ 18,167		$ 24,367

XML

Segment Reporting and Geographic Information (External Revenue and Long-Lived Assets by Geographic Region) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 43,170	$ 38,385	$ 128,612	$ 115,465
Long-Lived Assets	5,159		5,159		5,555
Americas [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-Lived Assets	3,256		3,256		3,326
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	13,254	15,010	39,665	40,811
Americas (Excluding the U.S.) [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	197	972	879	3,452
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	25,553	21,275	78,653	66,565
Long-Lived Assets	1,874		1,874		2,194
Italy [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	21,200	16,000	63,000	51,500
Asia Pacific [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	4,166	1,128	9,415	4,637
Long-Lived Assets	$ 29		$ 29		$ 35

XML

Fair Value Measurement (Cash and Cash Equivalents) (Details) (Money Market Funds [Member], Fair Value, Inputs, Level 1 [Member], USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash Equivalents, Beginning Balance	$ 11,605	$ 14,001
Cash Equivalents, Ending Balance	11,605	14,001
Cost [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash Equivalents, Beginning Balance	11,605	14,001
Cash Equivalents, Ending Balance	$ 11,605	$ 14,001

XML

Inventories (Tables)

9 Months Ended

Sep. 30, 2014

Inventory Disclosure [Abstract]

Schedule of Inventory, Current

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

	September 30, 2014		December 31, 2013
Raw materials	$	4,119	$	5,723
Work-in process	985		1,121
Finished goods	17,967		16,137
Total	$	23,071	$	22,981

XML

Accounts Receivable Factoring (Narrative) (Details) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014 USD ($)	Sep. 30, 2013 USD ($)	Sep. 30, 2014 USD ($)	Sep. 30, 2013 USD ($)	Sep. 30, 2014 EUR (€)	Dec. 31, 2013 USD ($)
Receivables [Abstract]
Amount of factoring permitted per credit facility agreements	$ 19.0		$ 19.0		€ 15.0
Accounts receivables sold	18.2		18.2			17.2
Outstanding balances on accounts receivable	14.9		14.9			7.7
Related losses on sale	$ (0.1)	$ (0.1)	$ (0.2)	$ (0.2)

XML

Share-Based Compensation (Share-Based Compensation Expense) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Allocated Share-based Compensation Expense	$ 231	[1]	$ 209	[1]	$ 706	[1]	$ 511	[1]
Cost of Goods Sold [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Allocated Share-based Compensation Expense	34		27		87		70
Product Development and Engineering [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Allocated Share-based Compensation Expense	49		21		122		46
Selling, General and Administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Allocated Share-based Compensation Expense	$ 148		$ 161		$ 497		$ 395

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

XML

Intangible Asset (Amortization Expense, Maturity Schedule) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014
Goodwill and Intangible Assets Disclosure [Abstract]
2014	$ 17
2015	68
2016	68
2017	68
2018	68
Thereafter	42
Finite-Lived Intangible Assets, Net	$ 331

XML

Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Income Tax Disclosure [Abstract]
Loss before provision for income taxes	$ (313)	$ (134)	$ (5,865)	$ (5,140)
Provision for income taxes	$ 727	$ 12	$ 1,659	$ 433
Effective tax rate	(232.00%)	(9.00%)	(28.00%)	(8.00%)

XML

Segment Reporting and Geographic Information (Statement of Operations Information by Business Segment) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013
Gross profit
Gross Profit	$ 14,716		$ 14,974		$ 42,749		$ 41,373
Depreciation expense
Depreciation expense	561		505		1,688		1,288
Operating income (loss)
Operating Income (Loss)	(424)		39		(5,399)		(4,509)
Total before intersegment adjustments [Member]
Gross profit
Gross Profit	14,716		14,975		42,749		41,368
Operating income (loss)
Operating Income (Loss)	809		1,612		(985)		1,563
Network Equipment [Member]
Gross profit
Gross Profit	11,062		12,041		33,007		33,990
Depreciation expense
Depreciation expense	459		406		1,428		988
Operating income (loss)
Operating Income (Loss)	(953)		87		(5,296)		(1,328)
Network Integration [Member]
Gross profit
Gross Profit	3,654		2,934		9,742		7,378
Depreciation expense
Depreciation expense	50		54		149		159
Operating income (loss)
Operating Income (Loss)	1,762		1,525		4,311		2,891
Corporate Unallocated and Intersegment Adjustments [Member]
Gross profit
Gross Profit	0	[1]	(1)	[1]	0	[1]	5	[1]
Operating income (loss)
Operating Income (Loss)	(1,233)	[1]	(1,573)	[1]	(4,414)	[1]	(6,072)	[1]
Corporate [Member]
Depreciation expense
Depreciation expense	$ 52		$ 45		$ 111		$ 141

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

XML

Fair Value Measurement

9 Months Ended

Sep. 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 September 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 Condensed Consolidated Balance Sheets as follows (in thousands):

	Cost		Fair Value
September 30, 2014	$	11,605	$	11,605
December 31, 2013	$	14,001	$	14,001

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 September 30, 2014. Upon issuance and revaluation, the warrants were removed from liabilities and recorded as a component of additional paid in capital.

XML

Share-Based Compensation (Valuation Assumptions) (Details) (Stock Options [Member])	9 Months Ended
	Sep. 30, 2014	Sep. 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

XML

Segment Reporting and Geographic Information (Tables)

9 Months Ended

Sep. 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   September 30,						Nine Months Ended   September 30,
	2014			2013			2014			2013
Network Equipment	$	21,979		$	22,806		$	66,131		$	64,852
Network Integration	21,237			15,585			62,644			50,701
Before intersegment adjustments	43,216			38,391			128,775			115,553
Intersegment adjustments	(46		)	(6		)	(163		)	(88		)
Total	$	43,170		$	38,385		$	128,612		$	115,465

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				Nine months ended
	September 30,				September 30,
	2014		2013		2014		2013
United States	$	13,254	$	15,010	$	39,665	$	40,811
Americas (Excluding the U.S.)	197		972		879		3,452
Europe	25,553		21,275		78,653		66,565
Asia Pacific	4,166		1,128		9,415		4,637
Total	$	43,170	$	38,385	$	128,612	$	115,465

Revenue from external customers attributed to Italy totaled $21.2 million and $16.0 million for the three months ended September 30, 2014, and September 30, 2013 respectively. Revenue from external customers attributed to Italy totaled $63.0 million and $51.5 million for the nine months endedSeptember 30, 2014, and September 30, 2013 respectively.

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

	September 30, 2014		December 31, 2013
Americas	$	3,256	$	3,326
Europe	1,874		2,194
Asia Pacific	29		35
Total	$	5,159	$	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						Nine months ended
	September 30,						September 30,
	2014			2013			2014			2013
Gross profit
Network Equipment	$	11,062		$	12,041		$	33,007		$	33,990
Network Integration	3,654			2,934			9,742			7,378
Total before intersegment adjustments	14,716			14,975			42,749			41,368
Corporate unallocated and intersegment adjustments(1)	—			(1		)	—			5
Total	$	14,716		$	14,974		$	42,749		$	41,373
Depreciation expense
Network Equipment	$	459		$	406		$	1,428		$	988
Network Integration	50			54			149			159
Corporate	52			45			111			141
Total	$	561		$	505		$	1,688		$	1,288
Operating income (loss)
Network Equipment	$	(953	)	$	87		$	(5,296	)	$	(1,328	)
Network Integration	1,762			1,525			4,311			2,891
Total before intersegment adjustments	809			1,612			(985		)	1,563
Corporate unallocated operating loss and adjustments (1)	(1,233		)	(1,573		)	(4,414		)	(6,072		)
Total	$	(424	)	$	39		$	(5,399	)	$	(4,509	)

(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):

	Nine months ended
	September 30,
	2014		2013
Additions to Fixed Assets
Network Equipment	$	1,736	$	2,679
Network Integration	95		53
Corporate	83		6
Total	$	1,914	$	2,738

	September 30, 2014		December 31, 2013
Total Assets
Network Equipment	$	42,457	$	48,955
Network Integration	58,259		54,625
Corporate and intersegment eliminations	18,167		24,367
Total	$	118,883	$	127,947

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Share-Based Compensation (Tables)

9 Months Ended

Sep. 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 nine months endedSeptember 30, 2014, and 2013 (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2014		2013		2014		2013
Cost of goods sold	$	34	$	27	$	87	$	70
Product development and engineering	49		21		122		46
Selling, general and administrative	148		161		497		395
Total share-based compensation expense (1)	$	231	$	209	$	706	$	511

(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 nine months endedSeptember 30, 2014 and the options modified during the nine months endedSeptember 30, 2013, respectively.

Nine months ended September 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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Segment Reporting and Geographic Information (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended			12 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014 segment	Sep. 30, 2013	Sep. 30, 2014 Network Integration [Member]	Sep. 30, 2013 Network Integration [Member]	Sep. 30, 2014 Network Integration [Member]	Sep. 30, 2013 Network Integration [Member]	Sep. 30, 2014 Network Integration [Member] Major Customer, One [Member]	Sep. 30, 2013 Network Integration [Member] Major Customer, One [Member]	Sep. 30, 2014 Network Integration [Member] Major Customer, One [Member]	Sep. 30, 2013 Network Integration [Member] Major Customer, One [Member]	Sep. 30, 2014 Network Integration [Member] Major Customer, Two [Member]	Sep. 30, 2013 Network Integration [Member] Major Customer, Two [Member]	Sep. 30, 2014 Network Integration [Member] Major Customer, Two [Member]	Sep. 30, 2013 Network Integration [Member] Major Customer, Two [Member]	Sep. 30, 2014 Network Integration [Member] Customer Concentration Risk [Member] Revenue [Member] Major Customer, One [Member]	Sep. 30, 2013 Network Integration [Member] Customer Concentration Risk [Member] Revenue [Member] Major Customer, One [Member]	Sep. 30, 2014 Network Integration [Member] Customer Concentration Risk [Member] Revenue [Member] Major Customer, One [Member]	Sep. 30, 2013 Network Integration [Member] Customer Concentration Risk [Member] Revenue [Member] Major Customer, One [Member]	Sep. 30, 2014 Network Integration [Member] Customer Concentration Risk [Member] Revenue [Member] Major Customer, Two [Member]	Sep. 30, 2013 Network Integration [Member] Customer Concentration Risk [Member] Revenue [Member] Major Customer, Two [Member]	Sep. 30, 2014 Network Integration [Member] Customer Concentration Risk [Member] Revenue [Member] Major Customer, Two [Member]	Sep. 30, 2013 Network Integration [Member] Customer Concentration Risk [Member] Revenue [Member] Major Customer, Two [Member]	Sep. 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]	Sep. 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	$ 43,170	$ 38,385	$ 128,612	$ 115,465	$ 21,237	$ 15,585	$ 62,644	$ 50,701	$ 11,000	$ 10,400	$ 33,800	$ 32,500	$ 6,100	$ 4,000	$ 20,200	$ 12,900
Concentration percentage																	25.00%	27.00%	26.00%	28.00%	14.00%	10.00%	16.00%	11.00%	12.00%	22.00%	29.00%	27.00%

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Income Taxes (Tables)

9 Months Ended

Sep. 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						Nine months ended
	September 30,						September 30,
	2014			2013			2014			2013
Loss before provision for income taxes	$	(313	)	$	(134	)	$	(5,865	)	$	(5,140	)
Provision for income taxes	727			12			1,659			433
Effective tax rate	(232		)%	(9		)%	(28		)%	(8		)%

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Organization and Summary of significant accounting policies (Narrative) (Details) (USD $)	3 Months Ended		9 Months Ended			3 Months Ended		6 Months Ended	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014 segment	Sep. 30, 2013	Dec. 31, 2013	Sep. 30, 2014 Restatement Adjustment [Member]	Jun. 30, 2014 Restatement Adjustment [Member]	Jun. 30, 2014 Restatement Adjustment [Member]	Sep. 30, 2014 Restatement Adjustment [Member]
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of Business Segments			2
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Revenue	$ 43,170,000	$ 38,385,000	$ 128,612,000	$ 115,465,000			$ (2,000,000)
Net loss			(7,524,000)	(5,573,000)		(200,000)	(100,000)	(100,000)	(300,000)
Cost of sales	28,454,000	23,411,000	85,863,000	74,092,000		200,000	(1,800,000)
Gross Profit	14,716,000	14,974,000	42,749,000	41,373,000			(200,000)
Provision for income taxes	727,000	12,000	1,659,000	433,000			(100,000)
Inventories	23,071,000		23,071,000		22,981,000	(200,000)	1,900,000	1,900,000	(200,000)
Deferred revenue			2,899,000	2,438,000			2,000,000
Deferred income taxes	1,139,000		1,139,000		1,219,000		100,000	100,000
Accumulated deficit	(1,215,860,000)		(1,215,860,000)		(1,208,337,000)		(100,000)	(100,000)
Intercompany profit in inventory						$ (200,000)

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Cash and Cash Equivalents and Restricted Time Deposits

9 Months Ended

Sep. 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 (Narrative) (Details) (USD $)	0 Months Ended	3 Months Ended	9 Months Ended
	Apr. 08, 2013	Sep. 30, 2014	Sep. 30, 2014	Feb. 18, 2014	Sep. 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					$ 11,605,000	$ 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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Net Income (Loss) Per Share (Narrative) (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 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)	10,907	0	7,887	0

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Income Taxes (Narrative) (Details) (USD $)	3 Months Ended		9 Months Ended							3 Months Ended	12 Months Ended	0 Months Ended	3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013 Federal Tax Authority [Member]	Dec. 31, 2013 Federal Tax Authority [Member] Capital Loss Carryforward [Member]	Dec. 31, 2013 State Tax Authority [Member]	Dec. 31, 2013 State Tax Authority [Member] Capital Loss Carryforward [Member]	Dec. 31, 2013 Foreign Tax Authority [Member]	Jun. 30, 2014 Ministry Of Economic Affairs And Finance, Italy [Member] Foreign Tax Authority [Member]	Dec. 31, 2013 Ministry Of Economic Affairs And Finance, Italy [Member] Foreign Tax Authority [Member]	Oct. 03, 2014 Ministry Of Economic Affairs And Finance, Italy [Member] Subsequent Event [Member] Foreign Tax Authority [Member]	Jun. 30, 2014 Ministry Of Economic Affairs And Finance, Italy [Member] Income Tax Expense (Benefit) [Member] Foreign Tax Authority [Member]	Jun. 30, 2014 Ministry Of Economic Affairs And Finance, Italy [Member] VAT Expense [Member] Foreign Tax Authority [Member]
Operating Loss Carryforwards [Line Items]
Provision for income taxes	$ 727,000	$ 12,000	$ 1,659,000	$ 433,000
Loss before provision for income taxes	(313,000)	(134,000)	(5,865,000)	(5,140,000)
Interest and penalties on a settlement of a tax audit of a foreign subsidiary	300,000												100,000	100,000
Proposed disallowance of deductions, percent											100.00%
Decrease in proposed disallowance of deductions, percent										60.00%
Accrued expense													200,000	100,000
Accrued income tax liability and accrued VAT liability including interest and penalties paid												500,000
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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Condensed Consolidated Statements of Operations (unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Revenue:
Product revenue	$ 31,196	$ 27,051	$ 93,411	$ 81,555
Service revenue	11,974	11,334	35,201	33,910
Total revenue	43,170	38,385	128,612	115,465
Cost of sales	28,454	23,411	85,863	74,092
Gross profit	14,716	14,974	42,749	41,373
Operating expenses:
Product development and engineering	5,060	4,627	16,030	13,729
Selling, general and administrative	10,080	10,308	32,118	32,153
Total operating expenses	15,140	14,935	48,148	45,882
Operating (loss) income	(424)	39	(5,399)	(4,509)
Interest expense	(116)	(41)	(306)	(414)
Other expense, net	227	(132)	(160)	(217)
Loss before provision for income taxes	(313)	(134)	(5,865)	(5,140)
Provision for income taxes	727	12	1,659	433
Net Loss	$ (1,040)	$ (146)	$ (7,524)	$ (5,573)
Net loss per share — basic (in usd per share)	$ (0.14)	$ (0.02)	$ (1.03)	$ (0.74)
Net loss per share — diluted (in usd per share)	$ (0.14)	$ (0.02)	$ (1.03)	$ (0.74)
Weighted average number of shares:
Basic (in shares)	7,362	7,522	7,335	7,539
Diluted (in shares)	7,362	7,522	7,335	7,539

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Segment Reporting and Geographic Information (Revenues by Segment) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Segment Reporting, Revenue Reconciling Item [Line Items]
Revenue	$ 43,170	$ 38,385	$ 128,612	$ 115,465
Before intersegment adjustments [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Revenue	43,216	38,391	128,775	115,553
Network Equipment [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Revenue	21,979	22,806	66,131	64,852
Network Integration [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Revenue	21,237	15,585	62,644	50,701
Intersegment adjustments [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Revenue	$ (46)	$ (6)	$ (163)	$ (88)

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Condensed Consolidated Statements of Cash Flows (unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash flows from operating activities:
Net loss	$ (7,524)	$ (5,573)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	1,688	1,288
Share-based compensation expense	706	511
Provision for doubtful accounts	80	323
Deferred income taxes	346	(803)
Loss on disposition of property and equipment	0	18
Changes in operating assets and liabilities:
Accounts and other receivables	10,205	(4,308)
Inventories	(1,403)	(2,536)
Other assets	(7,253)	2,498
Accounts payable	170	1,571
Accrued liabilities	(2,409)	1,770
Income tax payable	88	(34)
Deferred revenue	2,899	2,438
Other current liabilities	98	(162)
Net cash used in operating activities	(2,309)	(2,999)
Cash flows from investing activities:
Purchases of property and equipment	(1,914)	(2,738)
Proceeds from sale of investments in unconsolidated entities	0	(53)
Investment in restricted time deposits	(187)	(4)
Net cash used in investing activities	(2,101)	(2,795)
Cash flows from financing activities:
Shares repurchased for tax withholdings on vesting of restricted stock awards	(15)	0
Purchase of treasury shares	0	(2,654)
Borrowings on short-term debt	17,528	7,085
Payments on short-term debt	(15,802)	(8,524)
Net cash provided by (used in) financing activities	1,711	(4,093)
Effect of exchange rate changes on cash and cash equivalents	(359)	97
Net decrease in cash and cash equivalents	(3,058)	(9,790)
Cash and cash equivalents, beginning of period	27,591	40,609
Cash and cash equivalents, end of period	24,533	30,819
Supplemental disclosure of cash flow information:
Cash paid during period for interest	247	215
Cash paid during period for income taxes	$ 638	$ 656

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Inventories (Net of Reserves) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Inventory Disclosure [Abstract]
Raw materials	$ 4,119	$ 5,723
Work-in process	985	1,121
Finished goods	17,967	16,137
Total	$ 23,071	$ 22,981

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Organization and Summary of significant accounting policies (Policies)

9 Months Ended

Sep. 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 of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations although management 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 September 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

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Stands Update ("ASU")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. Management is currently evaluating the impact that adopting this new accounting guidance will have on its consolidated financial statements and footnote disclosures.

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (“ASU 2014-12”). The amendments in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Accounting Standards Codification Topic No. 718, “Compensation - Stock Compensation” (“ASC 718”), as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments in ASU 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in ASU 2014-12 either: (i) prospectively to all awards granted or modified after the effective date; or (ii) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. Management is currently evaluating the potential impact of the adoption of the new guidance, however does not expect the adoption of this new guidance to have a material impact 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. Management evaluates the collectability of accounts receivable based on a combination of factors. If management 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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Intangible Asset (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Goodwill and Intangible Assets Disclosure [Abstract]
Intangible assets	$ 751		$ 751		$ 873
Amortization of intangible assets	$ 10	$ 0	$ 10	$ 0
Estimated useful life of finite-lived intangible assets			5 years

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Credit Risk (Tables)

9 Months Ended

Sep. 30, 2014

Receivables [Abstract]

Schedule of Allowance for Doubtful Accounts

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

	Nine months ended
	September 30, 2014
Balance at beginning of period	$	2,183
Charged (reversed) to expense	80
Write-offs, net of amounts recovered	(69		)
Foreign currency translation adjustment	(87		)
Balance at end of period	$	2,107

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Organization and Summary of significant accounting policies

9 Months Ended

Sep. 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 of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations although management 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 September 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 September 30, 2014, and the results of its operations and comprehensive income (loss) for the three and nine months endedSeptember 30, 2014 and 2013, and its cash flows for the nine months endedSeptember 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 three months ended September 30, 2014, the Company recorded an out-of-period adjustment to eliminate intercompany profit in inventory of $0.2 million, which resulted in an increase to net loss of $0.2 million for the three and nine months ended September 30, 2014. The Company reduced inventory by $0.2 million, and increased cost of sales by $0.2 million related to prior periods to remove the effect of profit in inventory not previously eliminated. Management evaluated the effects of this adjustment on the Company’s consolidated financial statements and concluded that the error was not material to any prior periods, individually or in the aggregate. These out-of-period adjustments did not have a material impact on the Company’s consolidated financial statements for the three and nine months ended September 30, 2014.

During the three months ended June 30, 2014, the Company recorded an out-of-period adjustment to defer previously recognized revenue of $2.0 million, which resulted in an increase to after-tax net loss of $0.1 million for the nine months ended September 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 increases in Inventory of $1.9 million, deferred revenue of $2.0 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. Management evaluated the effects of this adjustment on the Company’s consolidated financial statements and concluded that the error was not material to any prior periods, individually or in the aggregate. These out-of-period adjustments did not have a material impact on the Company’s consolidated financial statements for the nine months ended September 30, 2014.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Stands Update ("ASU")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. Management is currently evaluating the impact that adopting this new accounting guidance will have on its consolidated financial statements and footnote disclosures.

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (“ASU 2014-12”). The amendments in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Accounting Standards Codification Topic No. 718, “Compensation - Stock Compensation” (“ASC 718”), as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments in ASU 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in ASU 2014-12 either: (i) prospectively to all awards granted or modified after the effective date; or (ii) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. Management is currently evaluating the potential impact of the adoption of the new guidance, however does not expect the adoption of this new guidance to have a material impact on its consolidated financial statements and footnote disclosures.

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Condensed Consolidated Statements of Comprehensive (Loss) Income (unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Statement of Comprehensive Income [Abstract]
Net Loss	$ (1,040)	$ (146)	$ (7,524)	$ (5,573)
Other comprehensive loss, net of tax
Foreign currency translation gain (loss)	(1,913)	855	(2,078)	460
Total comprehensive (loss) Income	$ (2,953)	$ 709	$ (9,602)	$ (5,113)

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Indemnification Obligations

9 Months Ended

Sep. 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 also 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 September 30, 2014, and December 31, 2013.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Nov. 04, 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	Sep. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		7,362,146

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Litigation

9 Months Ended

Sep. 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 paid $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.(Tecnonet), the Company's Italian subsidiary, filed a claim in an Italian civil court alleging that Tecnonet, and two of its 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 into 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.

Nhan T. Vo, individually and on behalf of other aggrieved employees vs. the Company, Superior Court of California, County of Los Angeles. On June 27, 2013, the plaintiff in this matter filed a lawsuit against the Company alleging claims for failure to properly pay overtime or provide meal and rest breaks to its non-exempt employees in California, among other things. The complaint seeks an unspecified amount of damages and penalties under provisions of the Labor Code, including the Labor Code Private Attorneys General Act. The Company has filed an answer denying all allegations regarding the plaintiff’s claims and asserting various defenses. The Company is currently in the discovery phase of this case.  As the ultimate outcome of this matter is uncertain no amounts have been accrued by the Company as of the date of this report. Depending on the actual outcome of this case, provisions could be recorded in the future which may have a material adverse effect on the Company’s operating results.

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 management 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.

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Condensed Consolidated Balance Sheets (unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 24,533	$ 27,591
Restricted time deposits	436	249
Accounts receivable, net	37,527	49,990
Other receivables	15,284	8,220
Inventories	23,071	22,981
Income taxes receivable	530	1,256
Deferred income taxes	1,139	1,219
Other current assets	5,372	5,664
Total current assets	107,892	117,170
Property and equipment, net	5,159	5,555
Deferred income taxes, net of current portion	3,806	3,694
Intangible asset, net	751	873
Other assets	1,275	655
Total assets	118,883	127,947
Current liabilities:
Short-term debt	5,175	4,320
Deferred consideration payable	233	233
Accounts payable	22,576	23,991
Accrued liabilities	14,728	19,463
Deferred revenue	13,024	10,557
Other current liabilities	639	357
Total current liabilities	56,375	58,921
Other long-term liabilities	5,883	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	1,284,319	1,281,883
Accumulated deficit	(1,215,860)	(1,208,337)
Treasury stock — 856 shares in 2014 and 856 shares in 2013	(10,412)	(10,412)
Accumulated other comprehensive (loss) income	(1,692)	386
Total stockholders' equity	56,625	63,790
Total liabilities and stockholders' equity	$ 118,883	$ 127,947

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Intangible Asset

9 Months Ended

Sep. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Asset

Intangible Asset

The balance of the intangible asset was $0.8 million as of September 30, 2014 and $0.9 million as of December 31, 2013. A portion of this, which represents software license agreements, was placed in service as of September 30, 2014. Amortization of intangible assets was $0.01 million for the three and nine months endedSeptember 30, 2014. There was no amortization recorded for the three and nine months ended September 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.

The following table illustrates the estimated future amortization expense of intangible assets placed into service as of September 30, 2014 (in thousands):

Fiscal Years	Estimated Amortization Expense
2014	$	17
2015	68
2016	68
2017	68
2018	68
Thereafter	42
	$	331

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Inventories

9 Months Ended

Sep. 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):

	September 30, 2014		December 31, 2013
Raw materials	$	4,119	$	5,723
Work-in process	985		1,121
Finished goods	17,967		16,137
Total	$	23,071	$	22,981

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Fair Value Measurement (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value, by Balance Sheet Grouping

Cash equivalents are included in the Condensed Consolidated Balance Sheets as follows (in thousands):

	Cost		Fair Value
September 30, 2014	$	11,605	$	11,605
December 31, 2013	$	14,001	$	14,001

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Accounts Receivable Factoring

9 Months Ended

Sep. 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 September 30, 2014, Tecnonet's factoring facility agreements permitted the factoring of up to €15.0 million, or $19.0 million, worth of receivables 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 September 30, 2014, and December 31, 2013, the face amount of total outstanding accounts receivable pursuant to these agreements was $18.2 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 $14.9 million and $7.7 million as of September 30, 2014, and December 31, 2013, respectively, and are included in other receivables on the accompanying balance sheets. The related losses on sale were $0.1 million and $0.1 million for the three months endedSeptember 30, 2014, and September 30, 2013, respectively and $0.2 million and $0.2 million for the nine months endedSeptember 30, 2014, and September 30, 2013, respectively and are included in interest expense on the accompanying consolidated statements of operations.

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Share-Based Compensation

9 Months Ended

Sep. 30, 2014

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

Share-Based Compensation

Share-Based Compensation

MRV records share-based compensation expense at fair value. The following table summarizes the impact on MRV's results of operations of recording share-based compensation for the three and nine months endedSeptember 30, 2014, and 2013 (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2014		2013		2014		2013
Cost of goods sold	$	34	$	27	$	87	$	70
Product development and engineering	49		21		122		46
Selling, general and administrative	148		161		497		395
Total share-based compensation expense (1)	$	231	$	209	$	706	$	511

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

The Company granted 15,000 stock options during the three months endedSeptember 30, 2014, and the related fair value was $6.06 per option. The Company granted 5,000 restricted shares during the three months endedSeptember 30, 2014, and the related fair value was $13.46 per share. The Company granted no stock options and no restricted shares during the three months endedSeptember 30, 2013. The Company granted 188,722 stock options during the nine months ended September 30, 2014 and the related weighted average fair value was $7.07 per share. The average fair value of 90,907 restricted shares granted during the nine months ended September 30, 2014, was $14.35 per share. The Company granted 80,242 stock options during the nine months ended September 30, 2013, and the related weighted average fair value was $4.89 per share. The average fair value of 91,388 restricted shares granted during the nine months ended September 30, 2013, was $9.98 per share. As of September 30, 2014, the total unrecognized share-based compensation balance for unvested securities, net of expected forfeitures, was$1.8 million, which is expected to be amortized over a weighted-average period of2.3 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 nine months endedSeptember 30, 2014 and the options modified during the nine months endedSeptember 30, 2013, respectively.

Nine months ended September 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

9 Months Ended

Sep. 30, 2014

Product Warranties Disclosures [Abstract]

Product Warranty

Product Warranty

As of September 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 nine months endedSeptember 30, 2014 (in thousands):

	Nine months ended
	September 30, 2014
Beginning balance	$	578
Cost of warranty claims	(18		)
Accruals for product warranties	52
Total	$	612

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Net Income (Loss) Per Share

9 Months Ended

Sep. 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 September 30,2014, and 2013 as they were anti-dilutive because of the net loss. In addition, for the three months ended September 30,2014, there were 10,907 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 endedSeptember 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 nine months ended September 30,2014, as they were anti-dilutive because of the net loss. Outstanding stock options to purchase 0.4 million shares were excluded in the computation of dilutive shares for the nine months ended September 30,2013, as they were anti-dilutive because of the net loss. In addition, for the nine months ended September 30,2014, there were 7,887 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 nine months ended September 30,2013. Treasury shares are excluded from the number of shares outstanding.

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Segment Reporting and Geographic Information

9 Months Ended

Sep. 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. Management 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   September 30,						Nine Months Ended   September 30,
	2014			2013			2014			2013
Network Equipment	$	21,979		$	22,806		$	66,131		$	64,852
Network Integration	21,237			15,585			62,644			50,701
Before intersegment adjustments	43,216			38,391			128,775			115,553
Intersegment adjustments	(46		)	(6		)	(163		)	(88		)
Total	$	43,170		$	38,385		$	128,612		$	115,465

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 $11.0 million and $10.4 million of revenue in Network Integration revenue, or 25% and 27% of total revenue, for the three months endedSeptember 30, 2014, and 2013, respectively. Another customer accounted for $6.1 million and $4.0 million of Network Integration revenue, or 14% and 10% of total revenue, for the three months endedSeptember 30, 2014, and 2013, respectively.

One customer accounted for $33.8 million and $32.5 million of revenue in Network Integration revenue, or 26% and 28% of total revenue, for the nine months endedSeptember 30, 2014, and 2013, respectively. Another customer accounted for $20.2 million and $12.9 million of Network Integration revenue, or 16% and 11% of total revenue, for the nine months endedSeptember 30, 2014, and 2013, respectively.

One customer in Network Integration accounted for 12% and 22% of total net accounts receivable as of September 30, 2014, and December 31, 2013, respectively. Another Network Integration customer accounted for 29% and 27% of total net accounts receivable as of September 30, 2014, and December 31, 2013, respectively.

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

	Three months ended				Nine months ended
	September 30,				September 30,
	2014		2013		2014		2013
United States	$	13,254	$	15,010	$	39,665	$	40,811
Americas (Excluding the U.S.)	197		972		879		3,452
Europe	25,553		21,275		78,653		66,565
Asia Pacific	4,166		1,128		9,415		4,637
Total	$	43,170	$	38,385	$	128,612	$	115,465

Revenue from external customers attributed to Italy totaled $21.2 million and $16.0 million for the three months ended September 30, 2014, and September 30, 2013 respectively. Revenue from external customers attributed to Italy totaled $63.0 million and $51.5 million for the nine months endedSeptember 30, 2014, and September 30, 2013 respectively.

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

	September 30, 2014		December 31, 2013
Americas	$	3,256	$	3,326
Europe	1,874		2,194
Asia Pacific	29		35
Total	$	5,159	$	5,555

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2014			2013			2014			2013
Gross profit
Network Equipment	$	11,062		$	12,041		$	33,007		$	33,990
Network Integration	3,654			2,934			9,742			7,378
Total before intersegment adjustments	14,716			14,975			42,749			41,368
Corporate unallocated and intersegment adjustments(1)	—			(1		)	—			5
Total	$	14,716		$	14,974		$	42,749		$	41,373
Depreciation expense
Network Equipment	$	459		$	406		$	1,428		$	988
Network Integration	50			54			149			159
Corporate	52			45			111			141
Total	$	561		$	505		$	1,688		$	1,288
Operating income (loss)
Network Equipment	$	(953	)	$	87		$	(5,296	)	$	(1,328	)
Network Integration	1,762			1,525			4,311			2,891
Total before intersegment adjustments	809			1,612			(985		)	1,563
Corporate unallocated operating loss and adjustments (1)	(1,233		)	(1,573		)	(4,414		)	(6,072		)
Total	$	(424	)	$	39		$	(5,399	)	$	(4,509	)

(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):

	Nine months ended
	September 30,
	2014		2013
Additions to Fixed Assets
Network Equipment	$	1,736	$	2,679
Network Integration	95		53
Corporate	83		6
Total	$	1,914	$	2,738

	September 30, 2014		December 31, 2013
Total Assets
Network Equipment	$	42,457	$	48,955
Network Integration	58,259		54,625
Corporate and intersegment eliminations	18,167		24,367
Total	$	118,883	$	127,947

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Credit Risk (Changes in the Allowance for Doubtful Accounts) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Allowance for Doubtful Accounts Receivable [Roll Forward]
Balance at beginning of period	$ 2,183
Charged (reversed) to expense	80	323
Write-offs, net of amounts recovered	(69)
Foreign currency translation adjustment	(87)
Balance at end of period	$ 2,107

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Share Repurchase (Narrative) (Details) (USD $)	9 Months Ended		0 Months Ended	7 Months Ended	9 Months Ended	0 Months Ended	5 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Dec. 03, 2012 December 2012 Share Repurchase Agreement [Member]	Jun. 30, 2013 December 2012 Share Repurchase Agreement [Member]	Sep. 30, 2013 December 2012 Share Repurchase Agreement [Member]	Aug. 15, 2013 August 2013 Share Repurchase Agreement [Member]	Dec. 31, 2013 August 2013 Share Repurchase Agreement [Member]
Equity, Class of Treasury Stock [Line Items]
Stock repurchase program, authorized amount			$ 10,000,000.0			$ 7,013,838
Treasury stock, shares acquired				302,178	261,863		127,510
Purchase of treasury shares	$ 0	$ 2,654,000		$ 3,000,000	$ 2,600,000		$ 1,300,000

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Income Taxes

9 Months Ended

Sep. 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						Nine months ended
	September 30,						September 30,
	2014			2013			2014			2013
Loss before provision for income taxes	$	(313	)	$	(134	)	$	(5,865	)	$	(5,140	)
Provision for income taxes	727			12			1,659			433
Effective tax rate	(232		)%	(9		)%	(28		)%	(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 of $0.7 million on an operating loss before provision for income taxes of $0.3 million for the three months ended September 30, 2014, is due to income tax associated with our foreign subsidiaries that do not benefit from our federal net operating loss carryforwards. The income tax expense of $1.7 million on an operating loss before provision for income taxes of $5.9 million for the nine months ended September 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 Tecnonet.

In 2013, the Italian Tax Authorities commenced an examination of Tecnonet and proposed a 100% disallowance of the deduction of certain sponsorship and advertising expenses for the years 2006 to 2011. The Company's management 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 the tax audit. During the three months ended June 30, 2014, the Italian tax authorities offered to reduce the 100% disallowance by 60%. Our local external tax advisers advised management that the 60% offer was a good result and that litigating the matter in Italian courts could be a protracted process despite the strong technical merits of our tax position. In consideration of our tax adviser’s assessment and management's desire to resolve this uncertainty, management accepted the 60% offer and settled with the Italian tax authorities in July 2014.

The Company recorded the interest and penalties of $0.1 million related to the accrued income tax expense of $0.2 million in income tax expense in the accompanying Condensed Consolidated Statement of Operations. Accrued interest and penalties are included in the related income tax liability in the Condensed 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 other expenses in the accompanying Condensed Consolidated Statement of Operations. Accrued interest and penalties are included in the related current accrued liability in the Condensed Consolidated Balance Sheet in June 2014. The accrued income tax liability and accrued VAT liability including interest and penalties of $0.5 million were paid in full on October 3, 2014.

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 September 30, 2014, the US federal and state NOLs had a full valuation allowance.

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Intangible Asset (Tables)

9 Months Ended

Sep. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

The following table illustrates the estimated future amortization expense of intangible assets placed into service as of September 30, 2014 (in thousands):

Fiscal Years	Estimated Amortization Expense
2014	$	17
2015	68
2016	68
2017	68
2018	68
Thereafter	42
	$	331

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Litigation (Narrative) (Details) (USD $)	0 Months Ended	9 Months Ended	12 Months Ended		1 Months Ended	12 Months Ended	3 Months Ended		9 Months Ended	1 Months Ended
	Apr. 08, 2013	Sep. 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	Sep. 30, 2014 Pending Litigation [Member] Superior Court of the State of California [Member] Purported Labor Code Violation Claim [Member]	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
Loss contingency accrued									$ 0

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Share-Based Compensation (Narrative) (Details) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total compensation cost not yet recognized	$ 1.8		$ 1.8
Total compensation cost not yet recognized, period for recognition			2 years 3 months 18 days
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options, grants during period (in shares)	15,000	0	188,722	80,242
Stock options, weighted-average fair value, grants during the period (dollars per share)	$ 6.06		$ 7.07	$ 4.89
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock, grants during period (in shares)	5,000	0	90,907	91,388
Restricted stock, weighted-average fair value, grants during the period (dollars per share)	$ 13.46		$ 14.35	$ 9.98

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Condensed Consolidated Balance Sheets (unaudited) (Parenthetical) (USD $)	Sep. 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	8,219,000	8,143,000
Common stock, shares outstanding	7,362,000	7,286,000
Treasury stock, shares	856,000	856,000

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Credit Risk

9 Months Ended

Sep. 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. Management evaluates the collectability of accounts receivable based on a combination of factors. If management 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 nine months endedSeptember 30, 2014(in thousands):

	Nine months ended
	September 30, 2014
Balance at beginning of period	$	2,183
Charged (reversed) to expense	80
Write-offs, net of amounts recovered	(69		)
Foreign currency translation adjustment	(87		)
Balance at end of period	$	2,107

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Product Warranty (Tables)

9 Months Ended

Sep. 30, 2014

Product Warranties Disclosures [Abstract]

Schedule of Product Warranty Liability

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

	Nine months ended
	September 30, 2014
Beginning balance	$	578
Cost of warranty claims	(18		)
Accruals for product warranties	52
Total	$	612

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Product Warranty (Narrative) (Details) (USD $) In Thousands, unless otherwise specified			9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2014 Minimum [Member]	Sep. 30, 2014 Maximum [Member]
Product Warranties Disclosures [Abstract]
Product warranty liability	$ 612	$ 578
Standard Product Warranty Period [Line Items]
Standard product warranty period			90 days	3 years

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Share Repurchase

9 Months Ended

Sep. 30, 2014

Equity [Abstract]

Share Repurchase

Share Repurchase

On December 3, 2012, the Company's 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 expired on December 31, 2013. Under this program, the Company purchased 261,863 shares at a total cost of approximately $2.6 million during the nine months ended September 30, 2013. From December 3, 2012, through September 30, 2013, the Company purchased 302,178 shares at a total cost of approximately $3.0 million.

On August 15, 2013, the Company's Board of Directors terminated the 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. From August 15, 2013, through December 31, 2013, the Company purchased 127,510 shares at a total cost of approximately $1.3 million. No additional shares were repurchased during the three and nine months endedSeptember 30, 2014, under this plan.