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, 2015

[ ] 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 3, 2015, 6,979,393 shares of Common Stock of MRV Communications, Inc. were outstanding.

1

MRV Communications, Inc.

Form 10-Q for the Quarter Ended September 30, 2015

Index

		Page
PART I	Financial Information	3
Item 1.	Unaudited Condensed Consolidated Financial Statements:	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014	3
	Condensed Consolidated Statements of Comprehensive Income (loss) for the three and nine months ended September 30, 2015 and 2014	4
	Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37
PART II	Other Information	39
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information
Item 6.	Exhibits	40
	Signatures	42

2

PART I - FINANCIAL INFORMATION

Item 1.         Condensed Consolidated Financial Statements

MRV Communications, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(unaudited)

	Three Months Ended   September 30,						Nine Months Ended   September 30,
	2015			2014			2015			2014
Revenue:
Product revenue	$	26,850		$	31,196		$	86,337		$	93,411
Service revenue	10,425			11,974			32,425			35,201
Total revenue	37,275			43,170			118,762			128,612
Cost of Revenue:
Cost of product	14,969			20,560			52,804			60,672
Cost of services	7,627			7,894			22,311			25,191
Total cost of revenue	22,596			28,454			75,115			85,863
Gross profit	14,679			14,716			43,647			42,749
Operating expenses:
Product development and engineering	4,900			5,060			15,335			16,030
Selling, general and administrative	8,593			10,080			27,134			32,118
Total operating expenses	13,493			15,140			42,469			48,148
Operating Income (loss)	1,186			(424		)	1,178			(5,399		)
Interest expense	(52		)	(116		)	(151		)	(306		)
Other income (expense), net	202			227			(99		)	(160		)
Income (loss) before provision for income taxes	1,336			(313		)	928			(5,865		)
Provision for income taxes	450			727			1,390			1,659
Net Income (loss)	$	886		$	(1,040	)	$	(462	)	$	(7,524	)
Net income (loss) per share — basic	$	0.13		$	(0.14	)	$	(0.07	)	$	(1.03	)
Net income (loss) per share — diluted	$	0.13		$	(0.14	)	$	(0.07	)	$	(1.03	)
Weighted average number of shares:
Basic	6,978			7,362			7,032			7,335
Diluted	7,014			7,362			7,032			7,335

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

3

MRV Communications, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(unaudited)

	Three Months Ended   September 30,					Nine Months Ended   September 30,
	2015		2014			2015			2014
Net Loss	$	886	$	(1,040	)	$	(462	)	$	(7,524	)
Other comprehensive loss, net of tax
Foreign currency translation gain (loss)	159		(1,913		)	(2,025		)	(2,078		)
Total comprehensive Income (loss)	$	1,045	$	(2,953	)	$	(2,487	)	$	(9,602	)

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)

(unaudited)

	September 30, 2015			December 31, 2014
Assets
Current assets:
Cash and cash equivalents	$	19,914		$	22,422
Restricted time deposits	190			235
Accounts receivable, net	36,930			43,513
Other receivables	9,596			11,012
Inventories, net	20,070			21,683
Income taxes receivable	251			558
Deferred income taxes	689			535
Other current assets	5,595			5,454
Total current assets	93,235			105,412
Property and equipment, net	4,603			4,890
Deferred income taxes	1,871			2,105
Intangible asset, net	1,214			1,364
Other assets	678			801
Total assets	$	101,601		$	114,572
Liabilities and stockholders' equity
Current liabilities:
Short-term debt	$	2,887		$	5,402
Deferred consideration payable	233			233
Accounts payable	22,006			24,327
Accrued liabilities	13,854			14,545
Deferred revenue	13,317			13,527
Other current liabilities	235			297
Total current liabilities	52,532			58,331
Other long-term liabilities	4,603			5,271
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 — 8,330 shares in 2015 and 8,242 shares in 2014
Outstanding — 6,972 shares in 2015 and 7,386 in 2014	270			270
Additional paid-in capital	1,285,409			1,284,483
Accumulated deficit	(1,220,954		)	(1,220,492		)
Treasury stock — 1,359 shares in 2015 and 856 shares in 2014	(15,355		)	(10,412		)
Accumulated other comprehensive loss	(4,904		)	(2,879		)
Total stockholders' equity	44,466			50,970
Total liabilities and stockholders' equity	$	101,601		$	114,572

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,
	2015			2014
Cash flows from operating activities:
Net loss	$	(462	)	$	(7,524	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	1,639			1,688
Share-based compensation expense	782			706
Provision for doubtful accounts	—			80
Deferred income taxes	179			346
Changes in operating assets and liabilities:
Accounts and other receivables	4,623			10,205
Inventories	(719		)	(1,403		)
Other assets	1,909			(7,253		)
Accounts payable	(1,039		)	170
Accrued liabilities	(390		)	(2,409		)
Income tax payable	27			88
Deferred revenue	137			2,899
Other current liabilities	(584		)	98
Net cash provided by (used in) operating activities	6,102			(2,309		)
Cash flows from investing activities:
Purchases of property and equipment	(1,236		)	(1,914		)
Proceeds from sale of property and equipment	9			—
Release of restricted time deposits	45			—
Investment in time deposits	—			(187		)
Net cash used in investing activities	(1,182		)	(2,101		)
Cash flows from financing activities:
Proceeds from exercise of stock options	145			—
Purchase of treasury shares	(4,943		)	—
Borrowings on short-term debt	5,601			17,528
Payments on short-term debt	(7,712		)	(15,802		)
Shares repurchased for tax withholdings on vesting of restricted stock awards	—			(15		)
Net cash (used in) provided by financing activities	(6,909		)	1,711
Effect of exchange rate changes on cash and cash equivalents	(519		)	(359		)
Net decrease in cash and cash equivalents	(2,508		)	(3,058		)
Cash and cash equivalents, beginning of period	22,422			27,591
Cash and cash equivalents, end of period	$	19,914		$	24,533
Supplemental disclosure of cash flow information:
Cash paid during period for interest	$	102		$	247
Cash paid during period for income taxes	$	765		$	638

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 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 Network Integration segment which primarily operates in Italy, provides network system design, integration and distribution services that include products manufactured by third-party vendors. Our Network Equipment segment includes two business units: our Optical Communications Systems division ("OCS"), and Appointech, Inc. ("Appointech"). Our Network Integration segment includes one business unit: Tecnonet S.p.A. ("Tecnonet").

On August 10, 2015, we announced that we entered into a shares purchase agreement (“the Purchase Agreement”) with Maticmind S.p.A., (the “Purchaser”), a company incorporated under the laws of Italy, for the sale of all of the shares of our wholly-owned subsidiary Tecnonet. The sale of Tecnonet is subject to stockholder approval and is expected to take place at a special meeting of stockholders scheduled for December 1, 2015.  For reporting purposes, the results of Tecnonet for the three and nine months ended September 30, 2015 and 2014 are included in continuing operations in the Company’s condensed consolidated financial statements and are further disclosed in segment reporting (see Note 10).

Basis of Presentation

The accompanying condensed 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 condensed 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, 2015, (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, 2014, (the “2014 Form 10-K”) filed with the SEC.

In the opinion of MRV's management, the unaudited interim financial information contained herein includes all normal recurring adjustments, necessary to present fairly the financial position of MRV as of September 30, 2015, and the results of its operations and comprehensive income (loss) for the three and nine months endedSeptember 30, 2015 and 2014, and its cash flows for the nine months endedSeptember 30, 2015 and 2014. The results reported in these condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the full year or any future periods.

7

Reclassification

Certain reclassifications have been made to 2014 amounts to conform to the 2015 presentation. These reclassifications did not impact previously reported operating results or the Company's previously reported financial position. The reclassification is to conform Rule 5-03 of Regulation S-X, which requires that costs of sales for both product and service revenue be disclosed separately on the condensed consolidated statement of operations.

Recently Issued Accounting Standards

In May 2014, the FASB issued 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 amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. ASU 2014-09 was originally effective for interim and annual reporting periods beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) – Deferral of the Effective Date, which defers the effective date to annual reporting periods beginning after December 15, 2017. Early application is permitted after December 15, 2016. Management is currently evaluating the potential impact that adopting ASU 2014-09 and ASU 2015-14 will have on its consolidated financial statements and footnote disclosures.

In June 2014, the FASB issued ASU 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 that adopting ASU 2014-12 will have on its consolidated financial statements and footnote disclosures.

In August 2014, the FASB issued ASU No. 2014-15, "Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern" ("ASU 2014-15"). ASU 2014-15 provides guidance on management’s responsibility in evaluating whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for the Company in its fourth quarter of fiscal 2017 with early adoption permitted. Management is currently evaluating the potential impact that adopting ASU 2014-15 will have on its consolidated financial statements and footnote disclosures.

In July 2015, the FASB issued ASU No. 2015-11, "Simplifying the Measurement of Inventory" (“ASU 2015-11”). ASU 2015-11 simplifies the guidance on the subsequent measurement if inventory, excluding inventory measured using the last-in, first out of the retail inventory method. Under the new standard, inventory should be at the lower of cost and net realizable value. ASU 2015-11 will be effective for the Company in the first quarter of fiscal 2017 with early adoption permitted. Management is currently evaluating the potential impact that adopting ASU 2015-11 will have on its consolidated financial statements and footnote disclosures.

2. Cash and Cash Equivalents and Restricted Time Deposits

MRV accounts for 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 federally insured limits. As of September 30, 2015 and December 31, 2014, the Company's U.S. entities held $8.6 million and $13.3 million, respectively in various U.S. deposit accounts and a money market account. The remaining $11.3 million and $9.1 million, respectively, was held by the Company's foreign subsidiaries in foreign bank deposit accounts.

8

Restricted time deposits represent investments that are restricted as to withdrawal or use and are primarily in foreign subsidiaries. Restricted time deposits generally secure standby letters of credit, bank lines of credit, or bank loans. When investments in restricted time deposits are directly related to an underlying bank loan and the restricted funds will be used to repay the loans, the investment and the subsequent release of the restricted time deposit are treated as investing activities in the Company's Condensed Consolidated Statements of Cash Flows. The other investments in and releases of restricted time deposits are included in investing activities because the funds are invested in certificates of deposit.

3. Fair Value Measurement

MRV's financial instruments, including cash and cash equivalents, restricted time deposits, accounts receivable, other receivables, accounts payable, and short-term debt obligations, are carried at cost, which approximates their fair value. The fair values of cash, restricted time deposits, accounts receivable, other receivable and accounts payable approximate their carrying amounts due to their short-term nature. Short-term debt obligations have variable interest rates, which reset frequently; therefore, their carrying values do not materially differ from their calculated aggregate fair value.

The Company follows a framework for measuring fair value using 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 - Measurements based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access; Level 2 - Measurements for which all significant inputs are observable, either directly or indirectly, other than level 1 inputs, for similar instruments; Level 3 - Measurements based on inputs that are unobservable and significant to the overall fair value measurement.

Under the framework, 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. Management has not elected fair value accounting for its non-financial assets and liabilities.

As of September 30, 2015 and December 31, 2014, the Company had cash equivalents consisting of money market funds of $1.8 million and $10.6 million, respectively, with fair values determined using Level 1 inputs quoted at market price. Cash equivalents are included in the condensed consolidated balance sheets as follows (in thousands):

	Cost		Fair Value
September 30, 2015	$	1,807	$	1,807
December 31, 2014	$	10,606	$	10,606

During 2014, the Company updated the estimated fair value of 250,000 warrants originally recorded as a liability that was awarded to plaintiffs' counsel on February 18, 2014 in a litigation matter, see Note 12, Litigation. In calculating fair value, the Company used the Black-Scholes option pricing model 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. Upon issuance and revaluation in February 2014, the warrants met the requirements necessary for equity classification and were removed from liabilities and recorded as a component of additional paid in capital. No additional expense was recorded in any period subsequent to the three months ended March 31, 2014.

In November 2014, one of plaintiffs' counsel exercised 152,500 warrants under the 'cashless' exercise provisions contained within the warrant agreement, leaving 97,500 warrants available for future exercise. No additional warrants were exercised during the three and nine months ended September 30, 2015.

9

4. Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash and cash equivalents placed with financial institutions and accounts receivable due from customers. Management believes that the financial institutions holding our cash and cash equivalents have high credit quality.

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. 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, 2015(in thousands):

Balance at beginning of period	$	1,758
Charged (reversed) to expense	—
Write-offs, net of amounts recovered	(106		)
Foreign currency translation adjustment	(57		)
Balance at end of period	$	1,595

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) at September 30, 2015 and December 31, 2014:

	September 30, 2015		December 31, 2014
Raw materials	$	3,267	$	3,663
Work-in process	637		641
Finished goods	16,166		17,379
Total	$	20,070	$	21,683

6. Intangible Assets

Intangible assets, net of amortization, totaled $1.2 million and $1.4 million as of September 30, 2015 and December 31, 2014, respectively, and consist of intellectual property purchased during the years ended December 31, 2014 and 2013. A portion of these assets, approximating $1.0 million, represents software license agreements and was placed into service as of September 30, 2015. Amortization of intangible assets was $0.1 million and $0.2 million for the three and nine months ended September 30, 2015, respectively. There was no amortization recorded for the three and nine months ended September 30, 2014. The Company amortizes the cost of the license agreements over their estimated useful lives, which range from three to five years. As of September 30, 2015, intangible assets not yet placed into service totaled approximately $0.4 million, and management anticipates these assets will be placed in service during the quarter ending December 31, 2015.

10

The following table illustrates the estimated future amortization expense of intangible assets as of September 30, 2015 (in thousands):

Fiscal Year Ending December 31,	Estimated Amortization Expense
2015 - remaining balance	$	82
2016	328
2017	280
2018	214
2019	214
Thereafter	96
Total	$	1,214

7. Product Warranty

As of September 30, 2015, and December 31, 2014, MRV's product warranty liability recorded in accrued liabilities was $0.7 million and $0.6 million, respectively. 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, 2015 (in thousands):

Balance at beginning of the period	$	616
Cost of warranty claims	—
Accruals for product warranties	38
Balance at end of the period	$	654

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 net 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.

Employee equity share options, non-vested shares and similar equity instruments granted by MRV are treated as potential shares of common stock outstanding in computing diluted net income per share. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service not yet recognized, and the amount of income tax benefits that would be realized and recorded in additional paid-in capital if the deduction for the award would reduce income taxes payable are assumed to be used to repurchase shares on the open market.

11

The following table sets forth the computation of net income per common share – basic and diluted (in thousands, except per share amounts):

	Three months ended					Nine months ended
	September 30,					September 30,
	2015		2014			2015			2014
Numerator:
Net Income (loss)	$	886	$	(1,040	)	$	(462	)	$	(7,524	)
Denominator
Basic weighted average common shares outstanding	6,978		7,362			7,032			7,335
Effect of dilutive securities	36		—			—			—
Diluted weighted average common shares outstanding	7,014		7,362			7,032			7,335
Net income per common share
Basic	0.13		(0.14		)	(0.07		)	(1.03		)
Diluted	0.13		(0.14		)	(0.07		)	(1.03		)

Outstanding stock options to purchase 290,974 shares were excluded from the computation of dilutive income (loss) per shares for the three months ended September 30, 2015 as they were anti-dilutive. Outstanding stock options to purchase 413,901 shares were excluded from the computation of dilutive income (loss) per shares for the three months ended September 30, 2014, as they were anti-dilutive because of the net loss.

Outstanding stock options to purchase 407,480 and 369,321 shares were excluded from the computation of dilutive income (loss) per shares for the nine months ended September 30, 2015, and 2014, as they were anti-dilutive because of the net loss.

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, 2015 and 2014 (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2015		2014		2015		2014
Cost of goods sold	$	35	$	34	$	90	$	87
Product development and engineering	68		49		161		122
Selling, general and administrative	222		148		531		497
Total share-based compensation expense (1)	$	325	$	231	$	782	$	706

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

During the three months ended September 30, 2015, the Company granted 31,000 stock options with a related fair value of $5.28 per option and 11,000 restricted shares with a related fair value $12.12 per share. During the nine months ended September 30, 2015, the Company granted 228,848 stock options with a related fair value of $4.31 per option and 82,872 restricted shares with a related fair value of $9.96 per share.

During the three months ended September 30, 2014, the Company granted 15,000 stock options with a related fair value of $6.06 per option and 5,000 restricted shares with a related fair value $13.46 per share. During the nine months ended September 30, 2014, the Company granted 188,722 stock options with a related fair value of $7.07 per option and 90,907 restricted shares with a related fair value of $14.35 per share.

12

As of September 30, 2015, the total unrecognized share-based compensation balance for unvested options, net of expected forfeitures, was $1.9 million, which is expected to be amortized over a weighted-average period of 2.2 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. There were no options modified during the three and nine months endedSeptember 30, 2015 and 2014.

Nine months ended September 30,	2015		2014
Risk-free interest rate	1.7	%	2.0	%
Dividend yield (1)	—		—
Volatility	43	%	51	%
Expected life (in years)	6.0		5.9

(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: the Network Equipment segment and the Network Integration segment. The Network Equipment segment designs, manufactures, distributes and services optical networking solutions and Internet infrastructure products. The Network Integration segment distributes network solutions and Internet infrastructure products and provides value-added integration and support services for customers' networks. The Network Integration segment consists principally of the business operations of our wholly-owned subsidiary, Tecnonet.  As discussed in Note 1, the Company announced on August 10, 2015 that they entered into a shares purchase agreement to sell all of the shares of Tecnonet.  The sale is subject to stockholder approval and is expected to take place at a special meeting of stockholders currently scheduled for December 1, 2015.  Upon completion of the sale, the Company will have a single reporting segment, the Network Equipment segment.

The accounting policies of the segments are the same as those described in the summary of significant accounting polices disclosed in MRV's2014Form 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,
	2015			2014			2015			2014
Network Equipment	$	22,974		$	21,979		$	69,787		$	66,131
Network Integration	14,343			21,237			49,126			62,644
Total before intersegment adjustments	37,317			43,216			118,913			128,775
Intersegment adjustments	(42		)	(46		)	(151		)	(163		)
Total	$	37,275		$	43,170		$	118,762		$	128,612

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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 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 components sold as part of system solutions. Substantially all Network Integration's sales are within Italy.

One customer accounted for $24.4 million and $33.8 million of revenue in the Network Integration segment, or 21% and 26% of total revenue, for the nine months endedSeptember 30, 2015, and 2014, respectively. The same customer accounted for $7.5 million and $11.0 million of revenue in the Network Integration segment, or 20% and 25% of total revenue for the three months ended September 30, 2015 and 2014, respectively. The same customer accounted for 7% and 5% of total accounts receivable before allowance for doubtful accounts as of September 30, 2015, and December 31, 2014, respectively.

Another customer accounted for $16.5 million and $20.2 million of revenue in the Network Integration segment, or 14% and 16% of total revenue, for the nine months endedSeptember 30, 2015, and 2014, respectively. The same customer accounted for $4.8 million and $6.1 million of revenue in the Network Integration segment, or 13% and 14% of total revenue for the three months ended September 30, 2015 and 2014, respectively. The same customer accounted for 23% and 29% of total accounts receivable before allowance for doubtful accounts as of September 30, 2015, and December 31, 2014, respectively.

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

	Three months ended				Nine months ended
	September 30,				September 30,
	2015		2014		2015		2014
United States	$	10,368	$	13,254	$	34,239	$	39,665
Americas (Excluding the U.S.)	1,297		197		5,917		879
Europe	19,545		25,553		63,855		78,653
Asia Pacific	6,065		4,166		14,751		9,415
Total	$	37,275	$	43,170	$	118,762	$	128,612

Revenue from external customers attributed to Italy totaled $14.7 million and $21.2 million for the three months ended September 30, 2015 and 2014, respectively. Revenue from external customers attributed to Italy totaled $50.1 million and $63.0 million for the nine months ended September 30, 2015 and 2014, respectively. Revenue from external customers attributed to Australia totaled $5.7 million and $3.8 million for the three months ended September 30, 2015 and 2014, respectively. Revenue from external customers attributed to Australia totaled $13.5 million and $7.8 million for the nine months ended September 30, 2015 and 2014, respectively.

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

	September 30, 2015		December 31, 2014
Americas	$	2,961	$	3,078
Europe	1,622		1,786
Asia Pacific	20		26
Total	$	4,603	$	4,890

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2015			2014			2015			2014
Gross profit
Network Equipment	$	12,113		$	11,062		$	35,616		$	33,007
Network Integration	2,567			3,654			8,031			9,742
Total before intersegment adjustments	14,680			14,716			43,647			42,749
Corporate unallocated and intersegment adjustments(1)	(1		)	—			—			—
Total	$	14,679		$	14,716		$	43,647		$	42,749
Depreciation and amortization expense
Network Equipment	$	473		$	459		$	1,460		$	1,428
Network Integration	31			50			92			149
Corporate	29			52			87			111
Total	$	533		$	561		$	1,639		$	1,688
Operating income (loss)
Network Equipment	$	1,277		$	(953	)	$	1,599		$	(5,296	)
Network Integration	1,254			1,762			3,292			4,311
Total before intersegment adjustments	2,531			809			4,891			(985		)
Corporate unallocated operating loss and adjustments (1)	(1,345		)	(1,233		)	(3,713		)	(4,414		)
Total	$	1,186		$	(424	)	$	1,178		$	(5,399	)

(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,
	2015			2014
Additions (write-offs) of property and equipment
Network Equipment	$	1,168		$	1,736
Network Integration	74			95
Corporate	(6		)	83
Total	$	1,236		$	1,914

	September 30, 2015		December 31, 2014
Total Assets
Network Equipment	$	42,472	$	40,664
Network Integration	49,270		56,921
Corporate and intersegment eliminations	9,859		16,987
Total	$	101,601	$	114,572

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11. Indemnification Obligations

We have agreements whereby our officers and directors are indemnified for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we retain directors and officers insurance that reduces our exposure and enables us to recover portions of amounts paid. As a result of our insurance coverage, we believe the estimated fair value of these indemnification agreements is minimal.

Management is not aware of any claims under these indemnifications, and accordingly, no liabilities have been recorded for these agreements as of September 30, 2015, and December 31, 2014.

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. 

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 have been implemented.

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 alleged 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 claimed damages and restitution from Tecnonet and the subcontractors, jointly and severally, of approximately $3.0 million in the aggregate, plus costs. On July 21, 2015, Tecnonet and the plaintiff entered into an agreement to settle the lawsuit for a one-time cash payment, which had been accrued at June 30, 2015 and December 31, 2014. The settlement for this litigation was paid during the quarter ended September 30, 2015. Accordingly, we now consider this matter to be closed.

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.  Management believes it has accrued adequate reserves for this matter and does not expect the resolution of this case to have a material adverse effect on its business or financial condition. However, 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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In connection with the sale by MRV of Source Photonics, Inc. (“SPI”) in October 2010, MRV agreed to indemnify the buyer against certain claims brought after the closing for prior-occurring events. The Company has received a notice from SPI, advising the Company of a tax audit for periods including tax returns filed prior to the acquisition of SPI by the buyer. MRV believes that it has meritorious defenses to the extent a formal indemnification claim is asserted and has submitted the potential claim to its insurer.  MRV intends to vigorously contest any claim; however, no formal legal proceeding has been commenced, and MRV can provide no assurance that such claim would not have a material adverse effect on its business, operating results or financial condition.

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.

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, 2015, Tecnonet's factoring agreements permitted the factoring of up to €15.0 million or $16.9 million of accounts receivable in Italy. The factoring of accounts receivable under these agreements is accounted for as a sale, as the Company has no retained interests or servicing liabilities related to the accounts receivable that have been sold in Italy.

At September 30, 2015 and December 31, 2014, the face amount of total outstanding accounts sold by the Company pursuant to these agreements was $10.1 million and $10.5 million, respectively. Receivables transferred to the factor are derecognized at the date of sale and amounted to $31.5 million and $50.4 million for the nine months ended September 30, 2015 and 2014, respectively. Proceeds are recorded at fair value and amounted to $31.3 million and $57.8 million for the nine months ended September 30, 2015 and 2014, respectively. Proceeds consist of a receivable due from the factor. Cash received from the factors is recorded as a reduction of the receivable due from the factor. The related outstanding receivables from the factor were $9.2 million and $10.4 million as of September 30, 2015 and December 31, 2014, respectively, and included in other receivables on the accompanying condensed consolidated balance sheets. The related losses on the sale were $0.1 million for the three months endedSeptember 30, 2015 and 2014, and $0.1 million and $0.2 million for the nine months ended September 30, 2015 and 2014, respectively and are included in interest expense on the accompanying condensed consolidated statements of operations.

14. Short Term Debt

Short-term debt consists of unsecured lines of credit held by Tecnonet, the Company's Italian Network Integration subsidiary. As of September 30, 2015 and December 31, 2014, short-term debt totaled $2.9 million and $5.4 million, respectively. Short-term debt bears interest at rates ranging from 1.4% to 2.5%, and the weighted average interest rate was approximately 1.8% and 2.1% as of September 30, 2015andDecember 31, 2014, respectively. These obligations are incurred and settled in local currency.

15. Share Repurchase

On December 16, 2014, the Company's Board of Directors approved a repurchase of shares of the Company's Common Stock in an amount up to $8.0 million under a share repurchase plan that expires on November 13, 2015. During the three months ended September 30, 2015, the Company repurchased 33,621 shares at a total cost of approximately $0.4 million excluding commission under this share repurchase plan. The Company has repurchased 502,077 shares at a total cost of approximately $4.9 million excluding commission under this share repurchase plan through September 30, 2015. As of September 30, 2015, the Company had remaining authority to repurchase shares up to an additional $3.1 million excluding commission under this share repurchase plan prior to its expiration.

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16. Income Taxes

The following table provides details of income taxes for the three and nine months ended September 30, 2015 and 2014 (in thousands, except percentages):

	Three months ended						Nine months ended
	September 30,						September 30,
	2015			2014			2015			2014
Income (loss) before provision for income taxes	$	1,336		$	(313	)	$	928		$	(5,865	)
Provision for income taxes	450			727			1,390			1,659
Effective tax rate	34		%	(232		)%	150		%	(28		)%

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 $0.5 million and $1.4 million on our pre-tax income of $1.3 million and $0.9 million for the three and nine months ended September 30, 2015, respectively, is due to income tax associated with our foreign subsidiaries that do not benefit from our federal net operating loss carryforwards.

During the nine months endedSeptember 30, 2015, management determined that it no longer met the criteria for indefinite reinvestment of the undistributed earnings of its foreign subsidiaries. As a result, the Company recorded a provision for deferred taxes related to foreign earnings in the amount of $8.7 million and a corresponding reduction in the deferred tax valuation allowance of $8.7 million; the change had no impact on the Company's effective income tax rate for the period ended September 30, 2015.

As of December 31, 2014, MRV had federal, state, and foreign net operating loss ("NOLs") carryforwards available of $179.7 million, $100.7 million, and $97.3 million, respectively. Additionally, the Company had capital loss carryforwards of $110.5 million and $24.0 million for federal and state tax purposes, respectively as of December 31, 2014. The capital loss carry-forwards, which were generated by the sale of Source Photonics, expire at the end of 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 carryforwards 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 December 31, 2014 and September 30, 2015, the Company has recorded a valuation allowance against its net deferred tax asset which includes its US federal and state NOLs.

17. Sale of Tecnonet

On August 10, 2015, we announced that we entered into a shares purchase agreement (“the Purchase Agreement”) with Maticmind S.p.A., (the “Purchaser”), a company incorporated under the laws of Italy, for the sale of all of the shares of our wholly-owned subsidiary Tecnonet. The sale of Tecnonet is subject to stockholder approval, which had not been obtained prior to quarter end, and accordingly, Tecnonet is reported as a continuing operation as of September 30, 2015.

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The consideration for the transaction includes a cash payment by the Purchaser to the Company of €15.6 million at closing plus a cash payment by Tecnonet to the Company of €4.1 million prior to closing to repay an outstanding intercompany obligation. Tecnonet has procured third party debt financing and has repaid the loan in full in two payments. €1.5 million was received during the quarter ended September 30, 2015, with the remaining amount received during October, 2015. The Purchaser is obligated to assume this debt at closing. Within 60 days of closing, the parties are required to make a post-closing adjustment based on changes in debt and cash of Tecnonet between June 30, 2015 and closing, as provided for in the Purchase Agreement. The Purchase Agreement contains customary representations, warranties, covenants and indemnification obligations. The transaction is conditioned upon, among other things, the Company receiving stockholder approval for the transaction and other customary closing conditions. The closing is expected to occur on or around December 2, 2015. The Purchase Agreement contains a €250,000 termination fee (subject to increase to €350,000 if the Purchase Agreement is terminated after November 30, 2015) payable by the Company if the transaction is terminated because MRV stockholder approval is not obtained and under certain other circumstances.

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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 Condensed Consolidated Financial Statements and Notes thereto included elsewhere in this Form10-Q, and Items 6, 7 and 8 of our2014Form10-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. We generally identify forward-looking statements as statements other than statements of historical fact and by use of such terms as “anticipate,”“appear,”“believe,”“contemplate,”“could,” “estimate,” “expect,”“intend,”“may,” “should,” “plan,”“project,”“target,” “foresee,” “goal,” “likely,” “will,” and “would,” or similar statements.

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 2014 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.

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. 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. Sales of our products can be subject to seasonality.

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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 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 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 business units, 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, 2015 and 2014, revenue generated at foreign countries constituted 71% and 69% 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, 2015, the Company had $19.9 million in cash and cash equivalents and $0.2 million in restricted time deposits.

Critical Accounting Policies

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

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

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

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

We generally warrant our products against defects in materials and workmanship for 90 days to three year periods. The estimated costs 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 financial institutions and accounts receivable due from customers. We perform ongoing credit evaluations of our customers and maintain reserves for potential credit losses.

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

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Income Taxes. As part of the process of preparing our annual 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. In addition, as part of the preparation of our interim financial statements, management estimates income taxes based on the estimated annual effective tax rate in each of the various tax jurisdictions in which we operate that do not have a full valuation allowance. The most significant factors impacting the estimated tax rate is the source of taxable income among the various tax jurisdictions in which we operate. As a result, changes in the estimated annual effective rate can occur in subsequent interim periods and such changes could be material. 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 Condensed Consolidated 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 Condensed Consolidated 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.)

For further information around our critical accounting policies, please refer to “Critical Accounting Policies” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K.

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 and the Israeli new shekel. For the nine months ended September 30,2015 and 2014, 81% and 62% of external revenue, respectively, and 43% of operating expenses, were generated and incurred at foreign subsidiaries. The Israeli new shekel weakened 11% against the U.S. dollar in nine months ended September 30,2015, compared to a strengthening of 4% against the U.S. Dollar in the nine months ended September 30,2014. The Euro weakened 22% against the U.S. dollar in the nine months ended September 30,2015, compared to a strengthening of 3% against the U.S. Dollar in the nine months ended September 30,2014. 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, 2015, compared to the three and nine months endedSeptember 30, 2014. 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.

Certain revenue information is presented on a constant currency basis. The Company presents this supplemental revenue information because it believes doing so facilitates a comparison of its operating results from period to period without regard to changes resulting solely from fluctuations in currency rates. The Company calculates constant currency revenue growth by comparing current-period revenues to prior-period revenues with both periods converted at the U.S. Dollar/local currency average foreign exchange rate for each month of the prior period for the currencies in which we do business.

23

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,
	2015				2014					2015				2014
	$		% (1)		$			% (1)		$		%(1)		$			% (1)
Revenue(1) (2)	$	37,275	100	%	$	43,170		100	%	$	118,762	100	%	$	128,612		100	%
Network Equipment	22,974		62		21,979			51		69,787		59		66,131			51
Network Integration	14,343		38		21,237			49		49,126		41		62,644			49
Gross profit (3)	$	14,679	39		$	14,716		34		$	43,647	37		$	42,749		33
Network Equipment	12,113		53		11,062			50		35,616		51		33,007			50
Network Integration	2,567		18		3,654			17		8,031		16		9,742			16
Operating expenses (4)	$	13,493	36		$	15,140		35		$	42,469	36		$	48,148		37
Network Equipment	10,836		47		12,016			55		34,017		49		38,302			58
Network Integration	1,313		9		1,892			9		4,739		10		5,431			9
Operating income (loss) (3) (4)	$	1,186	3		$	(424	)	(1	)	$	1,178	1		$	(5,399	)	(4	)
Network Equipment	1,277		6		(953		)	(4	)	1,599		2		(5,296		)	(8	)
Network Integration	1,254		9		1,762			8		3,292		7		4,311			7

___________________________________

(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 30,2015 Compared to the Three months ended September 30,2014

Revenue

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

							Favorable/(Unfavorable)
Three months ended September 30:	2015			2014			$ Change			% Change		% Change constant currency(1)
Network Equipment	$	22,974		$	21,979		$	995		5	%	5	%
Network Integration	14,343			21,237			(6,894		)	(32	)	19
Total before intersegment adjustments	37,317			43,216			(5,899		)	(14	)	7
Intersegment adjustments (2)	(42		)	(46		)	4			(9	)	9
Total	$	37,275		$	43,170		$	(5,895	)	(14	)%	7	%

___________________________________

(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.

24

Consolidated revenue for the three months ended September 30, 2015decreased $5.9 million, or 14%, compared to the three months ended September 30, 2014, due to a $6.9 million, or 32%, decrease in Network Integration revenue. Consolidated revenue would have been $40.1 million, or $2.8 million higher for the three months ended September 30, 2015 had foreign currency exchange rates remained the same as they were for the three months ended September 30, 2014, with the unfavorable currency exchange primarily occurring within the Network Integration.

Network Equipment.     Revenue generated from Network Equipment increased $1.0 million, or 5%, for the three months ended September 30, 2015, compared to the three months ended September 30, 2014. The $1.0 million increase is comprised of a $1.5 million increase in product revenues offset by a $0.5 million decrease in service revenues. Revenues for our optical transport and carrier Ethernet products increased during the three months ended September 30, 2015, compared to three months ended September 30, 2014, offset by a decrease in network and infrastructure management products. Geographically, the increase in revenues was mainly attributable to higher sales in Latin America and Asia Pacific. In Asia Pacific, there was increased order volume over the same period in the prior year from a Tier One carrier. In Latin America, we experienced increased order volume from some of our larger South American customers. The foreign exchange impact to Network Equipment revenue is not material.

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

					Favorable/(Unfavorable)
Three months ended September 30:	2015		2014		$ Change			% Change
Revenue, excluding intersegment sales:
United States	$	10,368	$	13,253	$	(2,885	)	(22	)%
Americas (Excluding the U.S.)	1,297		197		1,100			558
Europe	5,202		4,316		886			21
Asia Pacific	6,065		4,167		1,898			46
Total external sales	22,932		21,933		999			5
Sales to Network Integration:
Europe	42		46		(4		)	(9	)
Total intersegment sales	42		46		(4		)	(9	)
Total Network Equipment revenue	$	22,974	$	21,979	$	995		5	%

Network Integration.     Revenue generated from Network Integration decreased $6.9 million, or 32%, for the three months ended September 30, 2015, compared to the three months ended September 30, 2014. The $6.9 milliondecrease in revenue was primarily due to a $5.8 million, or 49%, decrease in product revenue and a $1.1 million, or 11%, decrease in service revenues at Tecnonet. The decreases in product and service revenues at Tecnonet were driven by the fluctuation in the Euro among other things. Network Integration revenue would have been $17.1 million, or $2.8 million higher for the three months ended September 30, 2015 had foreign exchange rates remained the same as they were in the three months ended September 30, 2014. The $4.1 million decrease in Network Integration revenue on a constant currency basis for the three months ended September 30, 2015, when compared to the three months ended September 30, 2014, was primarily attributable to a general slowdown in the Italian economy and certain delays experienced with our larger customers.

25

Gross Profit

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

						Favorable/(Unfavorable)
Three months ended September 30:	2015			2014		$ Change			% Change		% Change constant currency (1)
Network Equipment	$	12,113		$	11,062	$	1,051		10	%	10	%
Network Integration	2,567			3,654		(1,087		)	(30	)	(16	)
Total before intersegment adjustments	14,680			14,716		(36		)	—		3
Intersegment adjustments (2)	(1		)	—		(1		)	—		—
Total	$	14,679		$	14,716	$	(37	)	—	%	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 remained unchanged in the three months ended September 30, 2015 when compared to the three months ended September 30, 2014. Consolidated gross margin for the three months endedSeptember 30, 2015, was 39.4% compared to 34.1% for the three months endedSeptember 30, 2014. The 5.3 percentage point increase was primarily due to the shift of segment revenue toward a higher percentage of total revenue coming from Network Equipment which has higher gross margins than Network Integration. Consolidated gross profit would have been $15.2 million, or $0.5 million higher for the three months ended September 30, 2015 had foreign exchange rates remained the same as they were in the three months ended September 30, 2014.

Network Equipment.   Gross profit for Network Equipment increased $1.1 million, or 10%, in the three months ended September 30, 2015, compared to the three months ended September 30, 2014, principally due to a $1.7 million, or 18%, increase in product revenue gross profit, offset by the $0.6 million, or 40% decrease in service revenue gross profit. The gross profit margin for product revenues increased 4.9 percentage points to 53.1% for the three months endedSeptember 30, 2015 compared to 48.2% for the three months endedSeptember 30, 2014 primarily as a result of the $1.5 million, or 8% increase in product revenues. The 4.9 percentage point improvement in gross profit was primarily a result of the revenue mix shift toward products that generally have higher margins, in addition to improvements made in our supply chain related to a re-alignment of outsourcing and contract manufacturing efforts that have afforded us savings in our internal overhead. The foreign exchange impact to Network Equipment gross profit is not material.

Network Integration.   Gross profit for Network Integration decreased $1.1 million, or 30%, in the three months ended September 30, 2015, compared to the three months ended September 30, 2014, primarily due to the $6.9 million, or 32%, decrease in Network Integration revenue driven by the foreign exchange impact. Gross margin for the three months ended September 30, 2015 was 17.9%, compared to 17.2% for the three months ended September 30, 2014, primarily due to an improvement in product revenue gross margins. Network Integration gross profit would have been $3.1 million, or $0.5 million higher for the three months ended September 30, 2015 had foreign exchange rates remained the same as they were in the three months ended September 30, 2014.

26

Operating Expenses

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

					(Favorable)/Unfavorable
Three months ended September 30:	2015		2014		$ Change			% Change		% Change constant currency (1)
Network Equipment	$	10,836	$	12,016	$	(1,180	)	(10	)%	(10	)%
Network Integration	1,313		1,892		(579		)	(31	)	(17	)
Total before intersegment adjustments	12,149		13,908		(1,759		)	(13	)	(11	)
Corporate unallocated operating expenses and adjustments (2)	1,344		1,232		112			9		9
Total	$	13,493	$	15,140	$	(1,647	)	(11	)%	(9	)%

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

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

Consolidated operating expenses were $13.5 million, or 36% of revenue, for the three months ended September 30, 2015, compared to $15.1 million, or 35% of revenue, for the three months ended September 30, 2014, a decrease of $1.6 million, or 11%. The decrease was primarily due to a decrease in Network Equipment expenses of $1.2 million, and a decrease of $0.6 million in Network Integration expenses. Consolidated operating expenses would have been $13.8 million, or $0.3 million higher for the three months ended September 30, 2015 had foreign exchange rates remained the same as they were in the three months ended September 30, 2014.

Network Equipment.     Operating expenses in Network Equipment for the three months ended September 30, 2015 were $10.8 million, or 47% of revenue, compared to $12.0 million, or 55% of revenue in three months ended September 30, 2014. The $1.2 million, or 10%, decrease in operating expenses was primarily due a $0.6 million decrease in salaries for sales support teams due to the restructuring of the teams, a $0.3 million decrease in travel and advertising expenses and a $0.2 million decrease in labor expenses due to reduced labor costs and recruiting fees due to efficiencies gained from reduced employee turnover. The foreign exchange impact to Network Equipment operating expenses is not material.

Network Integration.     Operating expenses in Network Integration for the three months ended September 30, 2015, were $1.3 million, or 9% of revenue, compared to $1.9 million, or 9% of revenue, for the three months ended September 30, 2014. The $0.6 million, or 31%, decrease was mainly due to $0.2 million decrease in sales labor and commission costs and a combined $0.3 million decrease in accounting fees. Network Integration operating expenses would have been $1.5 million, or $0.3 million higher for the three months ended September 30, 2015 had foreign exchange rates remained the same as they were in the three months ended September 30, 2014.

Corporate. Operating expenses for Corporate were $1.3 million, or 4% of revenue, for the three months ended September 30, 2015, compared to $1.2 million, or 3% of revenue, for the three months ended September 30, 2014, an increase of $0.1 million, or 9%. The increase was primarily related to a increase in general and administrative charges related to stock based compensation. The foreign exchange fluctuations do not impact Corporate operating expenses as the business unit is not subject to foreign exchange fluctuations since its reporting currency is U.S. dollars.

27

Operating Income (Loss)

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

							Favorable/(Unfavorable)
Three months ended September 30:	2015			2014			$ Change			% Change		% Change constant currency(1)
Network Equipment	$	1,277		$	(953	)	$	2,230		(234	)%	(234	)%
Network Integration	1,254			1,762			(508		)	(29	)	(15	)
Total before intersegment adjustments	2,531			809			1,722			213		243
Corporate unallocated and adjustments (2)	(1,345		)	(1,233		)	(112		)	(9	)	9
Total	$	1,186		$	(424	)	$	1,610		(380	)%	(437	)%

(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 operating income of $1.3 million for three months ended September 30, 2015, compared to an operating loss of $1.0 million for the three months ended September 30, 2014. The $2.2 million change in operating results was primarily a result of the $1.2 million decrease in operating expenses discussed above along with the $1.1 million increase in gross profit. Network Equipment operating margin was 5.6% and (4)% for the three months endedSeptember 30, 2015 and 2014, respectively. The foreign exchange impact to Network Equipment operating results is not material.

Network Integration.    Network Integration reported operating income of $1.3 million for the three months ended September 30, 2015, compared to operating income of $1.8 million for three months ended September 30, 2014. The $0.5 million, or 29% decrease was primarily a result of $1.1 million decrease in gross profit partially offset by a $0.6 million decrease in operating expenses. Network Integration operating margin was 9% and 8% for the three months endedSeptember 30,2015 and 2014, respectively. Network Integration operating income would have been $1.5 million, or $0.2 million higher for the three months ended September 30, 2015 had foreign exchange rates remained the same as they were in the three months ended September 30, 2014.

Interest Expense and Other Income (Expense), Net

Interest expense was $0.1 million for the three months ended September 30, 2015 and 2014. 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, 2015, and 2014, were $0.5 million and $0.7 million, respectively, and were computed based on an estimated annual effective tax rate for the Company in each of the various tax jurisdictions we operate that do not have a full valuation allowance. 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 $0.5 million on income before provision for income taxes of $1.3 million for the three months ended September 30, 2015, is due to income tax associated with our foreign subsidiaries that do not benefit from our federal net operating loss carryforwards.

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Tax Loss Carryforwards

As of December 31, 2014, MRV had federal, state, and foreign net operating loss ("NOLs") carryforwards available of $179.7 million, $100.7 million, and $97.3 million, respectively. Additionally, the Company had capital loss carryforwards of $110.5 million and $24.0 million for federal and state tax purposes, respectively as of December 31, 2014. The capital loss carry-forwards, which were generated by the sale of Source Photonics, expire at the end of 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 carryforwards 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, 2015, the US federal and state NOLs had a full valuation allowance.

Nine months ended September 30, 2015 Compared To Nine months ended September 30, 2014

Revenue

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

							Favorable/(Unfavorable)
Nine months ended September 30:	2015			2014			$ Change			% Change		% Change constant currency(1)
Network Equipment	$	69,787		$	66,131		$	3,656		6	%	6	%
Network Integration	49,126			62,644			(13,518		)	(22	)	(4	)
Total before intersegment adjustments	118,913			128,775			(9,862		)	(8	)	1
Intersegment adjustments (2)	(151		)	(163		)	12			(7	)	(7	)
Total	$	118,762		$	128,612		$	(9,850	)	(8	)%	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) Adjustments represent the elimination of intersegment revenue.

Consolidated revenue for the nine months ended September 30,2015, decreased $9.9 million, or 8%, compared to the nine months ended September 30, 2014. This decrease was primarily due to a $13.5 million, or 22% decrease in Network Integration revenue, offset by the $3.7 million increase Network Equipment revenue. Consolidated revenue would have been $129.6 million, or $10.8 million higher for the nine months ended September 30, 2015 had foreign currency exchange rates remained the same as they were for the nine months ended September 30, 2014, with the unfavorable currency exchange primarily occurring within the Network Integration segment.

Network Equipment.     Revenue generated from Network Equipment increased $3.7 million, or 6% in the nine months ended September 30,2015, compared to the nine months ended September 30,2014. Revenues increased primarily due to a $2.9 million increase in product revenue and a $0.7 million increase in service revenue. Revenues for our optical transport and carrier Ethernet products increased during the nine months ended September 30, 2015 compared to nine months ended September 30, 2014, offset by a decrease in network and infrastructure management products. Geographically, the increase in revenues was mainly attributable to higher sales in Latin America and Asia Pacific. In Asia Pacific, there was increased order volume over the same period in the prior year from a Tier One carrier. Sales in Latin America experienced increased order volume from one of our larger South American customers in Chile. Sales in the United States decreased in the nine months ended September 30, 2015 when compared to the nine months ended September 30, 2014, primarily driven by timing of bookings from two of the region’s top customers. Sales in Europe decreased in the nine months ended September 30, 2015 when compared to the nine months ended September 30, 2014 as a result of a decrease in channel partner order volume. The foreign exchange impact to Network Equipment revenue is not material.

29

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

					Favorable/(Unfavorable)
Nine months ended September 30:	2015		2014		$ Change			% Change
Revenue, excluding intersegment sales:
United States	$	34,239	$	39,665	$	(5,426	)	(14	)%
Americas (Excluding the U.S.)	5,917		879		5,038			573
Europe	14,729		16,009		(1,280		)	(8	)
Asia Pacific	14,751		9,415		5,336			57
Total external sales	69,636		65,968		3,668			6
Sales to Network Integration group:
Europe	151		163		(12		)	(7	)
Total intersegment sales	151		163		(12		)	(7	)
Total Network Equipment revenue	$	69,787	$	66,131	$	3,656		6	%

Network Integration.     Revenue generated from Network Integration decreased $13.5 million, or 22% for the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014. This decrease was due to a $10.0 million, or 29% decrease in product revenue and $3.5 million, or 12% decrease in service revenues at Tecnonet primarily driven by the foreign exchange impact. Network Integration revenue would have been $59.9 million, or $10.7 million higher for the nine months ended September 30, 2015 had foreign exchange rates remained the same as they were in the nine months ended September 30, 2014. The $2.8 million decrease in Network Integration revenue on a constant currency basis for the nine months ended September 30, 2015 when compared to the nine months ended September 30, 2014 was primarily attributable to a general slowdown in the Italian economy and certain delays experienced with our larger customers.

Gross Profit

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

					Favorable/(Unfavorable)
Nine months ended September 30:	2015		2014		$ Change			% Change		% Change constant currency (1)
Network Equipment	$	35,616	$	33,007	$	2,609		8	%	8	%
Network Integration	8,031		9,742		(1,711		)	(18	)	—
Total before intersegment adjustments	43,647		42,749		898			2		6
Intersegment adjustments (2)	—		—		—			—		—
Total	$	43,647	$	42,749	$	898		2	%	6	%

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

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

30

Consolidated gross profit increased $0.9 million, or 2% for the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014, principally due to the 3.5 percentage point increase in consolidated gross margins offset by a $9.9 million or 8% decrease in consolidated revenues. Consolidated gross margin for the nine months ended September 30, 2015, was 36.8% compared to 33.2% for the nine months ended September 30, 2014. The 3.5 percentage point increase was primarily due to the shift of segment revenue toward a higher percentage of total revenue coming from Network Equipment, which has higher gross margins than Network Integration. Consolidated gross profit would have been $45.4 million, or $1.7 million higher for the nine months ended September 30, 2015 had foreign exchange rates remained the same as they were in the nine months ended September 30, 2014.

Network Equipment.     Gross profit in Network Equipment increased $2.6 million, or 8%, in the nine months endedSeptember 30, 2015, compared to the nine months endedSeptember 30, 2014, principally due to a $1.8 million, or 6%, increase in product revenue gross profit and the $0.8 million increase in service revenue gross profit. The gross profit margin for service revenues increased 4.9 percentage points to 61.5% for the nine months endedSeptember 30, 2015 compared to 56.6% for the nine months endedSeptember 30, 2014, while the gross profit margin for product revenues increased 0.6 percentage points to 49.7% for the nine months endedSeptember 30, 2015 compared to 49.1% for the nine months endedSeptember 30, 2014. The 4.9 percentage point improvement in gross profit was primarily a result of the revenue mix shift toward products that generally have higher margins, in addition to improvements made in our supply chain related to a re-alignment of outsourcing and contract manufacturing efforts that have afforded us savings in our internal overhead. The foreign exchange impact to Network Equipment gross profit is not material.

Network Integration.     Gross profit in Network Integration decreased $1.7 million, or 18%, in the nine months endedSeptember 30, 2015, compared to the nine months endedSeptember 30, 2014, primarily due to the $13.5 million, or 22%, decrease in Network Integration revenue. Gross margin for the nine months endedSeptember 30, 2015 was 16.3%, compared to 15.6% for the nine months endedSeptember 30, 2014, primarily due to an improvement in service revenue gross margins. Network Integration gross profit would have been $9.8 million, or $1.7 million higher for the nine months endedSeptember 30, 2015 had foreign exchange rates remained the same as they were in the nine months endedSeptember 30, 2014.

Operating Expenses

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

					(Favorable)/Unfavorable
Nine months ended September 30:	2015		2014		$ Change			% Change		% Change constant currency (1)
Network Equipment	$	34,017	$	38,302	$	(4,285	)	(11	)%	(11	)%
Network Integration	4,739		5,431		(692		)	(13	)	7
Total before intersegment adjustments	38,756		43,733		(4,977		)	(11	)	(9	)
Corporate unallocated operating expenses and adjustments (2)	3,713		4,415		(702		)	(16	)	(16	)
Total	$	42,469	$	48,148	$	(5,679	)	(12	)%	(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) Corporate unallocated operating expenses include unallocated product development, and selling, general and administrative expenses.

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Consolidated operating expenses were $42.5 million, or 36% of revenue, for the nine months endedSeptember 30, 2015, compared to $48.1 million, or 37% of revenue, for the nine months endedSeptember 30, 2014, a decrease of $5.7 million, or 12%. The $5.7 million decrease was primarily due to a decrease in Network Equipment expenses of $4.3 million, and a decrease of $0.7 million in both Network Integration and Corporate and unallocated expenses. Consolidated operating expenses would have been $43.6 million, or $1.1 million higher for the three months ended September 30, 2015 had foreign exchange rates remained the same as they were in the three months ended September 30, 2014.

Network Equipment.     Operating expenses in Network Equipment for the nine months ended September 30, 2015, were $34.0 million, or 49% of revenue, compared to $38.3 million, or 58% of revenue for the nine months ended September 30, 2014. The $4.3 million or 11% decrease was primarily comprised of a $1.5 million decrease in salaries and wages principally as a result of restructuring operations such as our move to full contract manufacturing, a $1.3 million decrease in salaries for sales support teams due to the restructuring of the teams and a $1.0 million decrease in travel and advertising related expenses. The foreign exchange impact to Network Equipment operating expenses is not material.

Network Integration.     Operating expenses in Network Integration for the nine months ended September 30, 2015, were $4.7 million, or 10% of revenue, compared to $5.4 million, or 9% of revenue, for the nine months ended September 30, 2014. The $0.7 million, or 13%, decrease was mainly due to $0.6 million decrease in sales labor and commission costs and $0.1 million decrease in travel and advertising expenses. Network Integration operating expenses would have been $5.8 million, or $1.1 million higher for the nine months ended September 30, 2015 had foreign exchange rates remained the same as they were in the nine months ended September 30, 2014.

Corporate.     Corporate operating expenses decreased $0.7 million for the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014. The $0.7 million decrease was primarily related to decreases in general and administrative charges of $0.4 million warrant revaluation charges in the prior year as well as a $0.2 million decrease in legal and other professional fees. The foreign exchange fluctuations do not impact Corporate operating expenses as the business unit is not subject to foreign exchange fluctuations since its reporting currency is U.S. dollars.

Operating Income (Loss)

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

							Favorable/(Unfavorable)
Nine months ended September 30:	2015			2014			$ Change			% Change		% Change constant currency(1)
Network Equipment	$	1,599		$	(5,296	)	$	6,895		(130	)%	(130	)%
Network Integration	3,292			4,311			(1,019		)	(24	)	(8	)
Total before intersegment adjustments	4,891			(985		)	5,876			(597	)	(666	)
Corporate unallocated and adjustments (2)	(3,713		)	(4,414		)	701			(16	)	(16	)
Total	$	1,178		$	(5,399	)	$	6,577		(122	)%	(134	)%

(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 $5.7 million, or 12%, decrease in operating expenses and the $0.9 million, or 2%, increase in gross profit primarily led to a $6.6 million improvement in our operating results. Operating results included share-based compensation expense of $0.8 million and $0.7 million for the nine months ended September 30, 2015 and 2014, respectively. Our operating income would have been $1.9 million, or $0.7 million higher for the nine months ended September 30, 2015, had foreign currency exchange rates remained the same as they were in the prior year period.

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Network Equipment.    Network Equipment reported operating income of $1.6 million and operating loss of $5.3 million for the nine months ended September 30, 2015 and 2014, respectively. The $6.9 million improvement in operating results was primarily driven by our $4.3 million planned decrease in operating expenses and the $2.6 million increase in gross profit. Operating margin was 2% for the nine months ended September 30, 2015, and (8)% for the nine months ended September 30, 2014. The foreign exchange impact to Network Equipment operating results is not material.

Network Integration.     Network Integration reported operating income of $3.3 million for the nine months ended September 30, 2015, compared to operating income of $4.3 million for the nine months ended September 30, 2014. The decrease in operating profit was primarily due to the 22% decrease in Network Integration revenues. Network Integration operating margin was 7% for the nine months ended September 30, 2015 and 2014. Network Integration operating income would have been $4.0 million, or $0.7 million higher for the nine months ended September 30, 2015 had foreign exchange rates remained the same as they were in the nine months ended September 30, 2014.

Interest Expense and Other Expense, Net

Interest expense was $0.2 million in the nine months ended September 30,2015, and $0.3 million the nine months ended September 30,2014, 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 provision for income taxes for the nine months ended September 30,2015 and 2014 was $1.4 million and $1.7 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 $1.4 million on income before provision for income taxes of $0.9 million for the nine months endedSeptember 30, 2015, 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 the 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.

During the nine months ended September 30, 2015, management determined that it no longer met the criteria for indefinite reinvestment of foreign earnings. As a result, the Company recorded a provision for deferred tax liability related to the repatriation of earnings to the U.S. in the amount of $8.7 million, offset by the recording of a $8.7 million partial release of the Company's U.S. deferred tax valuation allowance.

Liquidity and Capital Resources

During the nine months endedSeptember 30, 2015, the Company's cash decreased $2.5 million to $19.9 million from $22.4 million. Cash outflows included a net loss of $0.5 million adjusted for non-cash expenses of $2.6 million, which included depreciation and amortization, share-based compensation, provision for doubtful accounts, deferred taxes and a gain on disposition of property and equipment to arrive at total $2.1 million net income adjusted for non-cash expenses. In addition, there were net cash outflows from working capital of approximately $4.0 million, primarily consisting of a $4.6 million increase in accounts and other receivables due to increased factoring of receivables at Tecnonet, a $1.9 million increase in other assets, and a $0.7 million decrease in inventory due to timing of shipments, offset by a $1.4 million increase in accounts payable and accrued liabilities due to timing of payments. Net cash used in investing activities included $1.2 million in purchases of property, plant, and equipment. Net cash used in financing activities included $4.9 million used to purchase shares of the Company's common stock, partially offset by $0.1 million proceeds received from stock option exercises, payments on short-term debt of $7.7 million at Tecnonet, partially offset by additional borrowings of $5.6 million, at Tecnonet.

We periodically review our capital position and consider returning capital to stockholders through special dividends or share repurchases when cash on hand exceeds our foreseeable cash needs. We also periodically review the capital needs of our business units. 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.

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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 (in thousands):

	September 30, 2015		December 31, 2014
Cash
Cash and cash equivalents	$	19,914	$	22,422
Restricted time deposits	190		235
	20,104		22,657
Short-term debt	2,887		5,402
Cash in excess of debt	$	17,217	$	17,255
Ratio of cash to debt(1)	7.0		4.2

(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, 2015		December 31, 2014		Increase (decrease)
Lines of credit secured by accounts receivable	$	2,887	$	5,402	$	(2,515	)

The $2.5 million decrease in short-term debt at September 30, 2015 compared to December 31, 2014, includes additional borrowings of $5.6 million, offset by payments of $7.7 million.

Working Capital

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

	September 30, 2015		December 31, 2014
Current assets	$	93,235	$	105,412
Current liabilities	52,532		58,331
Working capital	$	40,703	$	47,081
Current ratio(1)	1.8		1.8

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

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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, 2015, 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 Condensed 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, 2015, 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, 2015, 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, 2015, 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 as a component of other comprehensive income (loss). Approximately 53% and 65% of our cost of sales and operating expenses are reported by these subsidiaries for the nine months ended September 30,2015 and 2014, respectively. These currencies were generally weaker against the U.S. dollar for the nine months ended September 30,2015 compared to the nine months endedSeptember 30, 2014, so revenues and expenses in these countries translated into fewer dollars than they would have in the same period in 2014. For the nine months ended September 30,2015, we had approximately:

• $45.8 million in cost of goods and operating expenses recorded in euros;

• $0.8 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, 2015, our costs would have increased to approximately:

• $50.4 million cost of goods and operating expenses recorded in euros;

• $0.9 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, 2015		December 31, 2014
U.S. dollars	$	12,676	$	15,375
Euros	5,853		5,089
Taiwan dollars	182		137
Israeli new shekels	508		1,110
Other	695		711
Total cash and cash equivalents	$	19,914	$	22,422

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 and into 2014, 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 because of the material weaknesses in internal control over financial reporting described in Part II, Item 9A of the 2014 Form 10-K. These material weaknesses include the inadequate design of internal controls over the accounting for revenue in our Italian subsidiary, Tecnonet and over the utilization of spreadsheets in the reconciliation and review process supporting certain account balances within the consolidated financial statements.

As described in Item 9A in our Annual Report on Form 10-K for the year ended December 31, 2014, we identified a material weakness in internal controls over financial reporting related to the inadequate design of internal controls over the accounting for revenue in our Italian subsidiary, Tecnonet. Specifically, due to the Tecnonet personnel’s insufficient knowledge of the U.S. GAAP requirements related to maintenance of adequate documentation in support of certain revenue transactions, the Company did not have adequate controls in place to ensure that revenue was properly deferred in accordance with the U.S. GAAP requirements to enable appropriate revenue recognition. Over the past quarter, we have started to implement several measures, including developing new policies and comprehensive checklists and additional documentation requirements for such sales and implementing monitoring and review procedures to ensure that transactions requiring revenue deferral are identified, evaluated, and properly recognized.

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As described in Item 9A in our Annual Report on Form 10-K for the year ended December 31, 2014, we also identified a material weakness in internal controls over financial reporting related to the inadequate design and operating effectiveness of internal controls over the utilization of spreadsheets in the reconciliation and review process supporting certain account balances within the consolidated financial statements. Over the past quarter, we have implemented several measures, including working with business areas to identify our large and complex material spreadsheets and implementing policy guidelines regarding access control, version control, input, security and integrity of data, change management, overall analytics and segregation of duties over those spreadsheets.

Notwithstanding the ineffectiveness of our disclosure controls and procedures and the material weakness in our internal control over financial reporting that existed as of that date as described above, management believes that the consolidated interim unaudited financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows for the periods presented and that this Quarterly Report on Form 10-Q 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 periods covered by this report.

Except as noted in the preceding paragraphs of this Item 4, there was no change in our internal control over financial reporting during the three and nine months ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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. 

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 have been implemented.

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 alleged 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 claimed damages and restitution from Tecnonet and the subcontractors, jointly and severally, of approximately $3.0 million in the aggregate, plus costs. On July 21, 2015, Tecnonet and the plaintiff entered into an agreement to settle the lawsuit for a one-time cash payment, which had been accrued at June 30, 2015 and December 31, 2014. The settlement for this litigation was paid during the quarter ended September 30, 2015. Accordingly, we now consider this matter to be closed.

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.  Management believes it has accrued adequate reserves for this matter and does not expect the resolution of this case to have a material adverse effect on its business or financial condition. However, 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.

In connection with the sale by MRV of Source Photonics, Inc. (“SPI”) in October 2010, MRV agreed to indemnify the buyer against certain claims brought after the closing for prior-occurring events. The Company has received a notice from SPI, advising the Company of a tax audit for periods including tax returns filed prior to the acquisition of SPI by the buyer. MRV believes that it has meritorious defenses to the extent a formal indemnification claim is asserted and has submitted the potential claim to its insurer.  MRV intends to vigorously contest any claim; however, no formal legal proceeding has been commenced, and MRV can provide no assurance that such claim would not have a material adverse effect on its business, operating results or financial condition.

39

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.

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 the Company's risk factors that have been previously disclosed in Part I, Item 1A of the Company's 2014 Annual Report on Form 10-K.

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

Issuer Purchases of Equity Securities

On December 16, 2014, the Company's Board of Directors approved a repurchase of shares of Common Stock of the Company in an amount up to $8.0 million under a share repurchase plan that expires on November 13, 2015. The Company had no share repurchases settle under this program through December 31, 2014. During the three months ended September 30, 2015, the Company repurchased 33,621 shares at a total cost of approximately $0.4 million excluding commission under this share repurchase plan. The Company has repurchased 502,077 shares at a total cost of approximately $4.9 million excluding commission under this share repurchase plan through September 30, 2015. As of September 30, 2015, the Company had remaining authority to repurchase shares up to an additional $3.1 million excluding commission under this share repurchase plan prior to its expiration.

Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum amount remaining for purchase under the repurchase plan
July 1, 2015 to July 31, 2015	33,621	$	11.67	33,621	$	3,064,065
August 1, 2015 to August 31, 2015	—	$	—	—	$	—
September 1, 2015 to September 30, 2015	—	$	—	—	$	—
Total	33,621	$	11.67	33,621

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

(a)    Exhibits

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

41

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 4, 2015.

MRV COMMUNICATIONS, INC.

By: /s/ Mark J. Bonney

Mark J. Bonney

Chief Executive Officer

Principal Executive Officer

By: /s/ Stephen G. Krulik

Stephen G. Krulik

Chief Financial Officer

Principal Financial and Accounting Officer

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EX-31.1

Exhibit 31.1

CERTIFICATION OF THE PRINCIPAL EXECUTIVE 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, 2015;

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 4, 2015
/s/ Mark J. Bonney
Mark J. Bonney
Chief Executive Officer
(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

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

I, Stephen G. Krulik, certify that:

1. I have reviewed this Quarterly Report of MRV Communications, Inc. on Form 10-Q for the period ended September 30, 2015;

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 4, 2015
/s/ Stephen G. Krulik
Stephen G. Krulik
Chief Financial Officer
(Principal Financial and Accounting 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, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark J. Bonney, 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 4, 2015
/s/ Mark J. Bonney
Mark J. Bonney
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, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen G. Krulik, 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 4, 2015
/s/ Stephen G. Krulik
Stephen G. Krulik
Chief Financial Officer
(Principal Financial and Accounting Officer)

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Inventories (Net of Reserves) (Details) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Inventory Disclosure [Abstract]
Raw materials	$ 3,267	$ 3,663
Work-in process	637	641
Finished goods	16,166	17,379
Total	$ 20,070	$ 21,683

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Indemnification Obligations (Narrative) (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2015	Dec. 31, 2014
Indemnification Agreement [Member]
Loss Contingencies [Line Items]
Loss contingency accrued	$ 0	$ 0

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Share-Based Compensation (Valuation Assumptions) (Details) - Stock Options [Member]	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-free interest rate	1.70%	2.00%
Dividend yield	0.00%	0.00%
Volatility	43.00%	51.00%
Expected life (in years)	5 years 12 months	5 years 10 months 24 days

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Share-Based Compensation (Share-Based Compensation Expense) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total share-based compensation expense	$ 325	$ 231	$ 782	$ 706
Cost of Goods Sold [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total share-based compensation expense	35	34	90	87
Product Development and Engineering [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total share-based compensation expense	68	49	161	122
Selling, General and Administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total share-based compensation expense	$ 222	$ 148	$ 531	$ 497

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Income Taxes (Tables)

9 Months Ended

Sep. 30, 2015

Income Tax Disclosure [Abstract]

Details of Income Taxes

The following table provides details of income taxes for the three and nine months ended September 30, 2015 and 2014 (in thousands, except percentages):

	Three months ended						Nine months ended
	September 30,						September 30,
	2015			2014			2015			2014
Income (loss) before provision for income taxes	$	1,336		$	(313	)	$	928		$	(5,865	)
Provision for income taxes	450			727			1,390			1,659
Effective tax rate	34		%	(232		)%	150		%	(28		)%

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Short Term Debt (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2015	Dec. 31, 2014
Short-term Debt [Line Items]
Short-term debt	$ 2,887	$ 5,402
Line of Credit [Member] | Tecnonet [Member]
Short-term Debt [Line Items]
Short-term debt	$ 2,900	$ 5,400
Debt instrument, stated interest rate, minimum	1.40%
Debt instrument, stated interest rate, maximum	2.50%
Short-term debt, weighted average interest rate	1.80%	2.10%

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Fair Value Measurement (Tables)

9 Months Ended

Sep. 30, 2015

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, 2015	$	1,807	$	1,807
December 31, 2014	$	10,606	$	10,606

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Segment Reporting and Geographic Information (Revenues by Segment) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Segment Reporting, Revenue Reconciling Item [Line Items]
Revenue	$ 37,275	$ 43,170	$ 118,762	$ 128,612
Before intersegment adjustments [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Revenue	37,317	43,216	118,913	128,775
Network Equipment [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Revenue	22,974	21,979	69,787	66,131
Network Integration [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Revenue	14,343	21,237	49,126	62,644
Intersegment adjustments [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Revenue	$ (42)	$ (46)	$ (151)	$ (163)

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Product Warranty (Narrative) (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2015	Dec. 31, 2014
Standard Product Warranty Period [Line Items]
Product warranty liability	$ 654	$ 616
Minimum [Member]
Standard Product Warranty Period [Line Items]
Standard product warranty period	90 days
Maximum [Member]
Standard Product Warranty Period [Line Items]
Standard product warranty period	3 years

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Fair Value Measurement (Cash and Cash Equivalents) (Details) - Money Market Funds [Member] - Fair Value, Inputs, Level 1 [Member] $ in Thousands	Sep. 30, 2015 USD ($)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash Equivalents, Beginning Balance	$ 10,600
Cash Equivalents, Ending Balance	1,800
Cost [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash Equivalents, Beginning Balance	10,606
Cash Equivalents, Ending Balance	1,807
Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash Equivalents, Beginning Balance	10,606
Cash Equivalents, Ending Balance	$ 1,807

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Segment Reporting and Geographic Information (Statement of Operations Information by Business Segment) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Gross profit
Gross Profit	$ 14,679	$ 14,716	$ 43,647	$ 42,749
Depreciation expense
Depreciation expense	533	561	1,639	1,688
Operating income (loss)
Operating income (loss)	1,186	(424)	1,178	(5,399)
Total before intersegment adjustments [Member]
Gross profit
Gross Profit	14,680	14,716	43,647	42,749
Operating income (loss)
Operating income (loss)	2,531	809	4,891	(985)
Network Equipment [Member]
Gross profit
Gross Profit	12,113	11,062	35,616	33,007
Depreciation expense
Depreciation expense	473	459	1,460	1,428
Operating income (loss)
Operating income (loss)	1,277	(953)	1,599	(5,296)
Network Integration [Member]
Gross profit
Gross Profit	2,567	3,654	8,031	9,742
Depreciation expense
Depreciation expense	31	50	92	149
Operating income (loss)
Operating income (loss)	1,254	1,762	3,292	4,311
Corporate Unallocated and Intersegment Adjustments [Member]
Gross profit
Gross Profit	(1)	0	0	0
Operating income (loss)
Operating income (loss)	(1,345)	(1,233)	(3,713)	(4,414)
Corporate [Member]
Depreciation expense
Depreciation expense	$ 29	$ 52	$ 87	$ 111

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Sale of Tecnonet (Narrative) (Details) - Tecnonet [Member] - Disposal Group, Disposed of by Sale, Not Discontinued Operations [Member] $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2015 USD ($)	Sep. 30, 2015 payment	Dec. 01, 2015 EUR (€)	Nov. 30, 2015 EUR (€)
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Number of payments | payment		2
Proceeds from Divestiture of Businesses | $	$ 1.5
Scenario, Forecast [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Disposal group, consideration, cash				€ 15,600,000
Disposal group, consideration, assumed debt				4,100,000
Disposal group, termination fee			€ 350,000	€ 250,000

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Share-Based Compensation (Narrative) (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended				9 Months Ended
	Sep. 30, 2015	Mar. 31, 2015	Sep. 30, 2014	Mar. 31, 2014	Sep. 30, 2015	Sep. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options, grants during period (in shares)					197,848	173,722
Stock options, grants during period, weighted average grant date fair value (usd per share)					$ 4.16	$ 7.16
Restricted stock, grants during period (in shares)					71,872	85,907
Restricted stock, grants during period, weighted average grant date fair value (usd per share)					$ 9.63	$ 14.40
Total compensation cost not yet recognized	$ 1.9				$ 1.9
Total compensation cost not yet recognized, period for recognition					2 years 2 months 10 days
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options, grants during period (in shares)	31,000	0	15,000	0	228,848	188,722
Stock options, grants during period, weighted average grant date fair value (usd per share)	$ 5.28		$ 6.06		$ 4.31	$ 7.07
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock, grants during period (in shares)	11,000	0	5,000	0	82,872	90,907
Restricted stock, grants during period, weighted average grant date fair value (usd per share)	$ 12.12		$ 13.46		$ 9.96	$ 14.35

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Fair Value Measurement

9 Months Ended

Sep. 30, 2015

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, accounts payable, and short-term debt obligations, are carried at cost, which approximates their fair value. The fair values of cash, restricted time deposits, accounts receivable, other receivable and accounts payable approximate their carrying amounts due to their short-term nature. Short-term debt obligations have variable interest rates, which reset frequently; therefore, their carrying values do not materially differ from their calculated aggregate fair value.

The Company follows a framework for measuring fair value using 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 - Measurements based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access; Level 2 - Measurements for which all significant inputs are observable, either directly or indirectly, other than level 1 inputs, for similar instruments; Level 3 - Measurements based on inputs that are unobservable and significant to the overall fair value measurement.

Under the framework, 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. Management has not elected fair value accounting for its non-financial assets and liabilities.

As of September 30, 2015 and December 31, 2014, the Company had cash equivalents consisting of money market funds of $1.8 million and $10.6 million, respectively, with fair values determined using Level 1 inputs quoted at market price. Cash equivalents are included in the condensed consolidated balance sheets as follows (in thousands):

	Cost		Fair Value
September 30, 2015	$	1,807	$	1,807
December 31, 2014	$	10,606	$	10,606

During 2014, the Company updated the estimated fair value of 250,000 warrants originally recorded as a liability that was awarded to plaintiffs' counsel on February 18, 2014 in a litigation matter, see Note 12, Litigation. In calculating fair value, the Company used the Black-Scholes option pricing model 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. Upon issuance and revaluation in February 2014, the warrants met the requirements necessary for equity classification and were removed from liabilities and recorded as a component of additional paid in capital. No additional expense was recorded in any period subsequent to the three months ended March 31, 2014.

In November 2014, one of plaintiffs' counsel exercised 152,500 warrants under the 'cashless' exercise provisions contained within the warrant agreement, leaving 97,500 warrants available for future exercise. No additional warrants were exercised during the three and nine months ended September 30, 2015.

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Product Warranty (Change in Product Warranty Liability) (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2015 USD ($)
Movement in Standard and Extended Product Warranty, Increase (Decrease) [Roll Forward]
Balance at beginning of the period	$ 616
Cost of warranty claims	0
Accruals for product warranties	38
Balance at end of the period	$ 654

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Product Warranty (Tables)

9 Months Ended

Sep. 30, 2015

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, 2015 (in thousands):

Balance at beginning of the period	$	616
Cost of warranty claims	—
Accruals for product warranties	38
Balance at end of the period	$	654

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Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2015

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 as of September 30, 2015 (in thousands):

Fiscal Year Ending December 31,	Estimated Amortization Expense
2015 - remaining balance	$	82
2016	328
2017	280
2018	214
2019	214
Thereafter	96
Total	$	1,214

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Accounts Receivable Factoring (Narrative) (Details) € in Millions, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2015 USD ($)	Sep. 30, 2014 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2014 USD ($)	Sep. 30, 2015 EUR (€)	Sep. 30, 2015 USD ($)	Dec. 31, 2014 USD ($)
Receivables [Abstract]
Amount of factoring permitted per credit facility agreements					€ 15.0	$ 16.9
Accounts receivables sold						10.1	$ 10.5
Receivables transferred to the factor			$ 31.5	$ 50.4
Proceeds from sale of accounts receivables			31.3	57.8
Outstanding balances on accounts receivable						$ 9.2	$ 10.4
Related losses on sale	$ 0.1	$ 0.1	$ 0.1	$ 0.2

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Net Income (Loss) Per Share (Narrative) (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
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)	290,974	413,901	407,480	369,321

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Net Income (Loss) Per Share (Tables)

9 Months Ended

Sep. 30, 2015

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

The following table sets forth the computation of net income per common share – basic and diluted (in thousands, except per share amounts):

	Three months ended					Nine months ended
	September 30,					September 30,
	2015		2014			2015			2014
Numerator:
Net Income (loss)	$	886	$	(1,040	)	$	(462	)	$	(7,524	)
Denominator
Basic weighted average common shares outstanding	6,978		7,362			7,032			7,335
Effect of dilutive securities	36		—			—			—
Diluted weighted average common shares outstanding	7,014		7,362			7,032			7,335
Net income per common share
Basic	0.13		(0.14		)	(0.07		)	(1.03		)
Diluted	0.13		(0.14		)	(0.07		)	(1.03		)

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Share-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2015

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, 2015 and 2014 (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2015		2014		2015		2014
Cost of goods sold	$	35	$	34	$	90	$	87
Product development and engineering	68		49		161		122
Selling, general and administrative	222		148		531		497
Total share-based compensation expense (1)	$	325	$	231	$	782	$	706

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

Schedule of Share-based Payment Award, Stock Options, 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. There were no options modified during the three and nine months endedSeptember 30, 2015 and 2014.

Nine months ended September 30,	2015		2014
Risk-free interest rate	1.7	%	2.0	%
Dividend yield (1)	—		—
Volatility	43	%	51	%
Expected life (in years)	6.0		5.9

(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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Cash and Cash Equivalents and Restricted Time Deposits

9 Months Ended

Sep. 30, 2015

Cash and Cash Equivalents [Abstract]

Cash and Cash Equivalents and Restricted Time Deposits

Cash and Cash Equivalents and Restricted Time Deposits

MRV accounts for 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 federally insured limits. As of September 30, 2015 and December 31, 2014, the Company's U.S. entities held $8.6 million and $13.3 million, respectively in various U.S. deposit accounts and a money market account. The remaining $11.3 million and $9.1 million, respectively, was held by the Company's foreign subsidiaries in foreign bank deposit accounts.

Restricted time deposits represent investments that are restricted as to withdrawal or use and are primarily in foreign subsidiaries. Restricted time deposits generally secure standby letters of credit, bank lines of credit, or bank loans. When investments in restricted time deposits are directly related to an underlying bank loan and the restricted funds will be used to repay the loans, the investment and the subsequent release of the restricted time deposit are treated as investing activities in the Company's Condensed Consolidated Statements of Cash Flows. The other investments in and releases of restricted time deposits are included in investing activities because the funds are invested in certificates of deposit.

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Segment Reporting and Geographic Information (Tables)

9 Months Ended

Sep. 30, 2015

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,
	2015			2014			2015			2014
Network Equipment	$	22,974		$	21,979		$	69,787		$	66,131
Network Integration	14,343			21,237			49,126			62,644
Total before intersegment adjustments	37,317			43,216			118,913			128,775
Intersegment adjustments	(42		)	(46		)	(151		)	(163		)
Total	$	37,275		$	43,170		$	118,762		$	128,612

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

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

	September 30, 2015		December 31, 2014
Americas	$	2,961	$	3,078
Europe	1,622		1,786
Asia Pacific	20		26
Total	$	4,603	$	4,890

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

	Three months ended				Nine months ended
	September 30,				September 30,
	2015		2014		2015		2014
United States	$	10,368	$	13,254	$	34,239	$	39,665
Americas (Excluding the U.S.)	1,297		197		5,917		879
Europe	19,545		25,553		63,855		78,653
Asia Pacific	6,065		4,166		14,751		9,415
Total	$	37,275	$	43,170	$	118,762	$	128,612

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,
	2015			2014			2015			2014
Gross profit
Network Equipment	$	12,113		$	11,062		$	35,616		$	33,007
Network Integration	2,567			3,654			8,031			9,742
Total before intersegment adjustments	14,680			14,716			43,647			42,749
Corporate unallocated and intersegment adjustments(1)	(1		)	—			—			—
Total	$	14,679		$	14,716		$	43,647		$	42,749
Depreciation and amortization expense
Network Equipment	$	473		$	459		$	1,460		$	1,428
Network Integration	31			50			92			149
Corporate	29			52			87			111
Total	$	533		$	561		$	1,639		$	1,688
Operating income (loss)
Network Equipment	$	1,277		$	(953	)	$	1,599		$	(5,296	)
Network Integration	1,254			1,762			3,292			4,311
Total before intersegment adjustments	2,531			809			4,891			(985		)
Corporate unallocated operating loss and adjustments (1)	(1,345		)	(1,233		)	(3,713		)	(4,414		)
Total	$	1,186		$	(424	)	$	1,178		$	(5,399	)

(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,
	2015			2014
Additions (write-offs) of property and equipment
Network Equipment	$	1,168		$	1,736
Network Integration	74			95
Corporate	(6		)	83
Total	$	1,236		$	1,914

	September 30, 2015		December 31, 2014
Total Assets
Network Equipment	$	42,472	$	40,664
Network Integration	49,270		56,921
Corporate and intersegment eliminations	9,859		16,987
Total	$	101,601	$	114,572

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Intangible Assets (Narrative) (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014	Dec. 31, 2014
Finite-Lived Intangible Assets [Line Items]
Intangible assets	$ 1,214,000		$ 1,214,000		$ 1,364,000
Amortization of intangible assets	100,000	$ 0	200,000	$ 0
Developed Technology Rights, Placed in Service [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets	1,000,000		$ 1,000,000
Developed Technology Rights, Placed in Service [Member] | Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life of finite-lived intangible assets			3 years
Developed Technology Rights, Placed in Service [Member] | Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life of finite-lived intangible assets			5 years
Developed Technology Rights, Not Placed in Service [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets	$ 400,000		$ 400,000

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Segment Reporting and Geographic Information (Balance Sheet and Statement of Cash Flow Information) (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Dec. 31, 2014
Segment Reporting Information [Line Items]
Additions to Fixed Assets	$ 1,236	$ 1,914
Assets	101,601		$ 114,572
Network Equipment [Member]
Segment Reporting Information [Line Items]
Additions to Fixed Assets	1,168	1,736
Assets	42,472		40,664
Network Integration [Member]
Segment Reporting Information [Line Items]
Additions to Fixed Assets	74	95
Assets	49,270		56,921
Corporate [Member]
Segment Reporting Information [Line Items]
Additions to Fixed Assets	(6)	$ 83
Corporate Unallocated and Intersegment Adjustments [Member]
Segment Reporting Information [Line Items]
Assets	$ 9,859		$ 16,987

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Condensed Consolidated Statements of Operations (unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Revenue:
Product revenue	$ 26,850	$ 31,196	$ 86,337	$ 93,411
Service revenue	10,425	11,974	32,425	35,201
Total revenue	37,275	43,170	118,762	128,612
Cost of Revenue:
Cost of product	14,969	20,560	52,804	60,672
Cost of services	7,627	7,894	22,311	25,191
Total cost of revenue	22,596	28,454	75,115	85,863
Gross profit	14,679	14,716	43,647	42,749
Operating expenses:
Product development and engineering	4,900	5,060	15,335	16,030
Selling, general and administrative	8,593	10,080	27,134	32,118
Total operating expenses	13,493	15,140	42,469	48,148
Operating Income (loss)	1,186	(424)	1,178	(5,399)
Interest expense	(52)	(116)	(151)	(306)
Other income (expense), net	202	227	(99)	(160)
Income (loss) before provision for income taxes	1,336	(313)	928	(5,865)
Provision for income taxes	450	727	1,390	1,659
Net Income (loss)	$ 886	$ (1,040)	$ (462)	$ (7,524)
Net income (loss) per share — basic (in usd per share)	$ 0.13	$ (0.14)	$ (0.07)	$ (1.03)
Net income (loss) per share — diluted (in usd per share)	$ 0.13	$ (0.14)	$ (0.07)	$ (1.03)
Weighted average number of shares:
Basic (in shares)	6,978	7,362	7,032	7,335
Diluted (in shares)	7,014	7,362	7,032	7,335

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Net Income (Loss) Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Earnings Per Share [Abstract]
Net Income (loss)	$ 886	$ (1,040)	$ (462)	$ (7,524)
Basic weighted average common shares outstanding (in shares)	6,978	7,362	7,032	7,335
Diluted weighted average common shares outstanding (in shares)	36	0	0	0
Diluted weighted average common shares outstanding (in shares)	7,014	7,362	7,032	7,335
Net income (loss) per share — basic (in usd per share)	$ 0.13	$ (0.14)	$ (0.07)	$ (1.03)
Net income (loss) per share — diluted (in usd per share)	$ 0.13	$ (0.14)	$ (0.07)	$ (1.03)

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Condensed Consolidated Statements of Cash Flows (unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Cash flows from operating activities:
Net loss	$ (462)	$ (7,524)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	1,639	1,688
Share-based compensation expense	782	706
Provision for doubtful accounts	0	80
Deferred income taxes	179	346
Changes in operating assets and liabilities:
Accounts and other receivables	4,623	10,205
Inventories	(719)	(1,403)
Other assets	1,909	(7,253)
Accounts payable	(1,039)	170
Accrued liabilities	(390)	(2,409)
Income tax payable	27	88
Deferred revenue	137	2,899
Other current liabilities	(584)	98
Net cash provided by (used in) operating activities	6,102	(2,309)
Cash flows from investing activities:
Purchases of property and equipment	(1,236)	(1,914)
Proceeds from sale of property and equipment	9	0
Release of restricted time deposits	45	0
Investment in time deposits	0	(187)
Net cash used in investing activities	(1,182)	(2,101)
Cash flows from financing activities:
Proceeds from exercise of stock options	145	0
Purchase of treasury shares	(4,943)	0
Borrowings on short-term debt	5,601	17,528
Payments on short-term debt	(7,712)	(15,802)
Shares repurchased for tax withholdings on vesting of restricted stock awards	0	(15)
Net cash (used in) provided by financing activities	(6,909)	1,711
Effect of exchange rate changes on cash and cash equivalents	(519)	(359)
Net decrease in cash and cash equivalents	(2,508)	(3,058)
Cash and cash equivalents, beginning of period	22,422	27,591
Cash and cash equivalents, end of period	19,914	24,533
Supplemental disclosure of cash flow information:
Cash paid during period for interest	102	247
Cash paid during period for income taxes	$ 765	$ 638

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Income Tax Disclosure [Abstract]
Income (loss) before provision for income taxes	$ 1,336	$ (313)	$ 928	$ (5,865)
Provision for income taxes	$ 450	$ 727	$ 1,390	$ 1,659
Effective tax rate	34.00%	(232.00%)	150.00%	(28.00%)

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Cash and Cash Equivalents and Restricted Time Deposits (Details) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014	Sep. 30, 2014	Dec. 31, 2013
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents	$ 19,914	$ 22,422	$ 24,533	$ 27,591
United States [Member]
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents	8,600	13,300
Foreign [Member]
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents	$ 11,300	$ 9,100

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Income Taxes

9 Months Ended

Sep. 30, 2015

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The following table provides details of income taxes for the three and nine months ended September 30, 2015 and 2014 (in thousands, except percentages):

	Three months ended						Nine months ended
	September 30,						September 30,
	2015			2014			2015			2014
Income (loss) before provision for income taxes	$	1,336		$	(313	)	$	928		$	(5,865	)
Provision for income taxes	450			727			1,390			1,659
Effective tax rate	34		%	(232		)%	150		%	(28		)%

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 $0.5 million and $1.4 million on our pre-tax income of $1.3 million and $0.9 million for the three and nine months ended September 30, 2015, respectively, is due to income tax associated with our foreign subsidiaries that do not benefit from our federal net operating loss carryforwards.

During the nine months endedSeptember 30, 2015, management determined that it no longer met the criteria for indefinite reinvestment of the undistributed earnings of its foreign subsidiaries. As a result, the Company recorded a provision for deferred taxes related to foreign earnings in the amount of $8.7 million and a corresponding reduction in the deferred tax valuation allowance of $8.7 million; the change had no impact on the Company's effective income tax rate for the period ended September 30, 2015.

As of December 31, 2014, MRV had federal, state, and foreign net operating loss ("NOLs") carryforwards available of $179.7 million, $100.7 million, and $97.3 million, respectively. Additionally, the Company had capital loss carryforwards of $110.5 million and $24.0 million for federal and state tax purposes, respectively as of December 31, 2014. The capital loss carry-forwards, which were generated by the sale of Source Photonics, expire at the end of 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 carryforwards 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 December 31, 2014 and September 30, 2015, the Company has recorded a valuation allowance against its net deferred tax asset which includes its US federal and state NOLs.

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Fair Value Measurement (Narrative) (Details) $ in Millions		1 Months Ended	3 Months Ended		9 Months Ended	12 Months Ended
	Apr. 08, 2013 shares	Nov. 30, 2014 shares	Sep. 30, 2015 USD ($) shares	Mar. 31, 2014 USD ($)	Sep. 30, 2015 USD ($) shares	Dec. 31, 2014 USD ($) $ / warrant	Feb. 18, 2014 shares
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
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 | $ / warrant						6.59
Liabilities, fair value adjustment | $				$ 0.4
Number of warrants exercised		152,500	0		0
Number of warrants outstanding		97,500
Money Market Funds [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash equivalents | $			$ 1.8		$ 1.8	$ 10.6

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Organization and Summary of significant accounting policies (Policies)

9 Months Ended

Sep. 30, 2015

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

The accompanying condensed 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 condensed 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, 2015, (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, 2014, (the “2014 Form 10-K”) filed with the SEC.

In the opinion of MRV's management, the unaudited interim financial information contained herein includes all normal recurring adjustments, necessary to present fairly the financial position of MRV as of September 30, 2015, and the results of its operations and comprehensive income (loss) for the three and nine months endedSeptember 30, 2015 and 2014, and its cash flows for the nine months endedSeptember 30, 2015 and 2014. The results reported in these condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the full year or any future periods.

Recently Issued Accounting Standards

In May 2014, the FASB issued 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 amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. ASU 2014-09 was originally effective for interim and annual reporting periods beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) – Deferral of the Effective Date, which defers the effective date to annual reporting periods beginning after December 15, 2017. Early application is permitted after December 15, 2016. Management is currently evaluating the potential impact that adopting ASU 2014-09 and ASU 2015-14 will have on its consolidated financial statements and footnote disclosures.

In June 2014, the FASB issued ASU 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 that adopting ASU 2014-12 will have on its consolidated financial statements and footnote disclosures.

In August 2014, the FASB issued ASU No. 2014-15, "Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern" ("ASU 2014-15"). ASU 2014-15 provides guidance on management’s responsibility in evaluating whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for the Company in its fourth quarter of fiscal 2017 with early adoption permitted. Management is currently evaluating the potential impact that adopting ASU 2014-15 will have on its consolidated financial statements and footnote disclosures.

In July 2015, the FASB issued ASU No. 2015-11, "Simplifying the Measurement of Inventory" (“ASU 2015-11”). ASU 2015-11 simplifies the guidance on the subsequent measurement if inventory, excluding inventory measured using the last-in, first out of the retail inventory method. Under the new standard, inventory should be at the lower of cost and net realizable value. ASU 2015-11 will be effective for the Company in the first quarter of fiscal 2017 with early adoption permitted.

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 financial institutions and accounts receivable due from customers. Management believes that the financial institutions holding our cash and cash equivalents have high credit quality.

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. 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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Organization and Summary of significant accounting policies

9 Months Ended

Sep. 30, 2015

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 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 Network Integration segment which primarily operates in Italy, provides network system design, integration and distribution services that include products manufactured by third-party vendors. Our Network Equipment segment includes two business units: our Optical Communications Systems division ("OCS"), and Appointech, Inc. ("Appointech"). Our Network Integration segment includes one business unit: Tecnonet S.p.A. ("Tecnonet").

On August 10, 2015, we announced that we entered into a shares purchase agreement (“the Purchase Agreement”) with Maticmind S.p.A., (the “Purchaser”), a company incorporated under the laws of Italy, for the sale of all of the shares of our wholly-owned subsidiary Tecnonet. The sale of Tecnonet is subject to stockholder approval and is expected to take place at a special meeting of stockholders scheduled for December 1, 2015.  For reporting purposes, the results of Tecnonet for the three and nine months ended September 30, 2015 and 2014 are included in continuing operations in the Company’s condensed consolidated financial statements and are further disclosed in segment reporting (see Note 10).

Basis of Presentation

The accompanying condensed 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 condensed 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, 2015, (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, 2014, (the “2014 Form 10-K”) filed with the SEC.

In the opinion of MRV's management, the unaudited interim financial information contained herein includes all normal recurring adjustments, necessary to present fairly the financial position of MRV as of September 30, 2015, and the results of its operations and comprehensive income (loss) for the three and nine months endedSeptember 30, 2015 and 2014, and its cash flows for the nine months endedSeptember 30, 2015 and 2014. The results reported in these condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the full year or any future periods.

Reclassification

Certain reclassifications have been made to 2014 amounts to conform to the 2015 presentation. These reclassifications did not impact previously reported operating results or the Company's previously reported financial position. The reclassification is to conform Rule 5-03 of Regulation S-X, which requires that costs of sales for both product and service revenue be disclosed separately on the condensed consolidated statement of operations.

Recently Issued Accounting Standards

In May 2014, the FASB issued 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 amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. ASU 2014-09 was originally effective for interim and annual reporting periods beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) – Deferral of the Effective Date, which defers the effective date to annual reporting periods beginning after December 15, 2017. Early application is permitted after December 15, 2016. Management is currently evaluating the potential impact that adopting ASU 2014-09 and ASU 2015-14 will have on its consolidated financial statements and footnote disclosures.

In June 2014, the FASB issued ASU 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 that adopting ASU 2014-12 will have on its consolidated financial statements and footnote disclosures.

In August 2014, the FASB issued ASU No. 2014-15, "Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern" ("ASU 2014-15"). ASU 2014-15 provides guidance on management’s responsibility in evaluating whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for the Company in its fourth quarter of fiscal 2017 with early adoption permitted. Management is currently evaluating the potential impact that adopting ASU 2014-15 will have on its consolidated financial statements and footnote disclosures.

In July 2015, the FASB issued ASU No. 2015-11, "Simplifying the Measurement of Inventory" (“ASU 2015-11”). ASU 2015-11 simplifies the guidance on the subsequent measurement if inventory, excluding inventory measured using the last-in, first out of the retail inventory method. Under the new standard, inventory should be at the lower of cost and net realizable value. ASU 2015-11 will be effective for the Company in the first quarter of fiscal 2017 with early adoption permitted. Management is currently evaluating the potential impact that adopting ASU 2015-11 will have on its consolidated financial statements and footnote disclosures.

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Condensed Consolidated Statements of Comprehensive Loss (unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Statement of Comprehensive Income [Abstract]
Net Loss	$ 886	$ (1,040)	$ (462)	$ (7,524)
Other comprehensive loss, net of tax
Foreign currency translation gain (loss)	159	(1,913)	(2,025)	(2,078)
Total comprehensive Income (loss)	$ 1,045	$ (2,953)	$ (2,487)	$ (9,602)

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Indemnification Obligations

9 Months Ended

Sep. 30, 2015

Commitments and Contingencies Disclosure [Abstract]

Indemnification Obligations

Indemnification Obligations

We have agreements whereby our officers and directors are indemnified for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we retain directors and officers insurance that reduces our exposure and enables us to recover portions of amounts paid. As a result of our insurance coverage, we believe the estimated fair value of these indemnification agreements is minimal.

Management is not aware of any claims under these indemnifications, and accordingly, no liabilities have been recorded for these agreements as of September 30, 2015, and December 31, 2014.

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2015	Nov. 03, 2015
Document and Entity Information [Abstract]
Entity Registrant Name	MRV COMMUNICATIONS INC
Entity Central Index Key	0000887969
Entity Filer Category	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		6,979,393

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Litigation

9 Months Ended

Sep. 30, 2015

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. 

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 have been implemented.

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 alleged 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 claimed damages and restitution from Tecnonet and the subcontractors, jointly and severally, of approximately $3.0 million in the aggregate, plus costs. On July 21, 2015, Tecnonet and the plaintiff entered into an agreement to settle the lawsuit for a one-time cash payment, which had been accrued at June 30, 2015 and December 31, 2014. The settlement for this litigation was paid during the quarter ended September 30, 2015. Accordingly, we now consider this matter to be closed.

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.  Management believes it has accrued adequate reserves for this matter and does not expect the resolution of this case to have a material adverse effect on its business or financial condition. However, 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.

In connection with the sale by MRV of Source Photonics, Inc. (“SPI”) in October 2010, MRV agreed to indemnify the buyer against certain claims brought after the closing for prior-occurring events. The Company has received a notice from SPI, advising the Company of a tax audit for periods including tax returns filed prior to the acquisition of SPI by the buyer. MRV believes that it has meritorious defenses to the extent a formal indemnification claim is asserted and has submitted the potential claim to its insurer.  MRV intends to vigorously contest any claim; however, no formal legal proceeding has been commenced, and MRV can provide no assurance that such claim would not have a material adverse effect on its business, operating results or financial condition.

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.

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	Sep. 30, 2015	Dec. 31, 2014
Current assets:
Cash and cash equivalents	$ 19,914	$ 22,422
Restricted time deposits	190	235
Accounts receivable, net	36,930	43,513
Other receivables	9,596	11,012
Inventories, net	20,070	21,683
Income taxes receivable	251	558
Deferred income taxes	689	535
Other current assets	5,595	5,454
Total current assets	93,235	105,412
Property and equipment, net	4,603	4,890
Deferred income taxes	1,871	2,105
Intangible asset, net	1,214	1,364
Other assets	678	801
Total assets	101,601	114,572
Current liabilities:
Short-term debt	2,887	5,402
Deferred consideration payable	233	233
Accounts payable	22,006	24,327
Accrued liabilities	13,854	14,545
Deferred revenue	13,317	13,527
Other current liabilities	235	297
Total current liabilities	52,532	58,331
Other long-term liabilities	$ 4,603	$ 5,271
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---8,330 shares in 2015 and 8,242 shares in 2014; Outstanding — 6,972 shares in 2015 and 7,386 shares in 2014	270	270
Additional paid-in capital	1,285,409	1,284,483
Accumulated deficit	(1,220,954)	(1,220,492)
Treasury stock — 1,359 shares in 2015 and 856 shares in 2014	(15,355)	(10,412)
Accumulated other comprehensive loss	(4,904)	(2,879)
Total stockholders' equity	44,466	50,970
Total liabilities and stockholders' equity	$ 101,601	$ 114,572

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Intangible Assets

9 Months Ended

Sep. 30, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

Intangible Assets

Intangible assets, net of amortization, totaled $1.2 million and $1.4 million as of September 30, 2015 and December 31, 2014, respectively, and consist of intellectual property purchased during the years ended December 31, 2014 and 2013. A portion of these assets, approximating $1.0 million, represents software license agreements and was placed into service as of September 30, 2015. Amortization of intangible assets was $0.1 million and $0.2 million for the three and nine months ended September 30, 2015, respectively. There was no amortization recorded for the three and nine months ended September 30, 2014. The Company amortizes the cost of the license agreements over their estimated useful lives, which range from three to five years. As of September 30, 2015, intangible assets not yet placed into service totaled approximately $0.4 million, and management anticipates these assets will be placed in service during the quarter ending December 31, 2015.

The following table illustrates the estimated future amortization expense of intangible assets as of September 30, 2015 (in thousands):

Fiscal Year Ending December 31,	Estimated Amortization Expense
2015 - remaining balance	$	82
2016	328
2017	280
2018	214
2019	214
Thereafter	96
Total	$	1,214

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Inventories

9 Months Ended

Sep. 30, 2015

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) at September 30, 2015 and December 31, 2014:

	September 30, 2015		December 31, 2014
Raw materials	$	3,267	$	3,663
Work-in process	637		641
Finished goods	16,166		17,379
Total	$	20,070	$	21,683

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Sale of Tecnonet

9 Months Ended

Sep. 30, 2015

Discontinued Operations and Disposal Groups [Abstract]

Sale of Tecnonet

Sale of Tecnonet

On August 10, 2015, we announced that we entered into a shares purchase agreement (“the Purchase Agreement”) with Maticmind S.p.A., (the “Purchaser”), a company incorporated under the laws of Italy, for the sale of all of the shares of our wholly-owned subsidiary Tecnonet. The sale of Tecnonet is subject to stockholder approval, which had not been obtained prior to quarter end, and accordingly, Tecnonet is reported as a continuing operation as of September 30, 2015.

The consideration for the transaction includes a cash payment by the Purchaser to the Company of €15.6 million at closing plus a cash payment by Tecnonet to the Company of €4.1 million prior to closing to repay an outstanding intercompany obligation. Tecnonet has procured third party debt financing and has repaid the loan in full in two payments. €1.5 million was received during the quarter ended September 30, 2015, with the remaining amount received during October, 2015. The Purchaser is obligated to assume this debt at closing. Within 60 days of closing, the parties are required to make a post-closing adjustment based on changes in debt and cash of Tecnonet between June 30, 2015 and closing, as provided for in the Purchase Agreement. The Purchase Agreement contains customary representations, warranties, covenants and indemnification obligations. The transaction is conditioned upon, among other things, the Company receiving stockholder approval for the transaction and other customary closing conditions. The closing is expected to occur on or around December 2, 2015. The Purchase Agreement contains a €250,000 termination fee (subject to increase to €350,000 if the Purchase Agreement is terminated after November 30, 2015) payable by the Company if the transaction is terminated because MRV stockholder approval is not obtained and under certain other circumstances.

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Accounts Receivable Factoring

9 Months Ended

Sep. 30, 2015

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, 2015, Tecnonet's factoring agreements permitted the factoring of up to €15.0 million or $16.9 million of accounts receivable in Italy. The factoring of accounts receivable under these agreements is accounted for as a sale, as the Company has no retained interests or servicing liabilities related to the accounts receivable that have been sold in Italy.

At September 30, 2015 and December 31, 2014, the face amount of total outstanding accounts sold by the Company pursuant to these agreements was $10.1 million and $10.5 million, respectively. Receivables transferred to the factor are derecognized at the date of sale and amounted to $31.5 million and $50.4 million for the nine months ended September 30, 2015 and 2014, respectively. Proceeds are recorded at fair value and amounted to $31.3 million and $57.8 million for the nine months ended September 30, 2015 and 2014, respectively. Proceeds consist of a receivable due from the factor. Cash received from the factors is recorded as a reduction of the receivable due from the factor. The related outstanding receivables from the factor were $9.2 million and $10.4 million as of September 30, 2015 and December 31, 2014, respectively, and included in other receivables on the accompanying condensed consolidated balance sheets. The related losses on the sale were $0.1 million for the three months endedSeptember 30, 2015 and 2014, and $0.1 million and $0.2 million for the nine months ended September 30, 2015 and 2014, respectively and are included in interest expense on the accompanying condensed consolidated statements of operations.

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Share-Based Compensation

9 Months Ended

Sep. 30, 2015

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, 2015 and 2014 (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2015		2014		2015		2014
Cost of goods sold	$	35	$	34	$	90	$	87
Product development and engineering	68		49		161		122
Selling, general and administrative	222		148		531		497
Total share-based compensation expense (1)	$	325	$	231	$	782	$	706

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

During the three months ended September 30, 2015, the Company granted 31,000 stock options with a related fair value of $5.28 per option and 11,000 restricted shares with a related fair value $12.12 per share. During the nine months ended September 30, 2015, the Company granted 228,848 stock options with a related fair value of $4.31 per option and 82,872 restricted shares with a related fair value of $9.96 per share.

During the three months ended September 30, 2014, the Company granted 15,000 stock options with a related fair value of $6.06 per option and 5,000 restricted shares with a related fair value $13.46 per share. During the nine months ended September 30, 2014, the Company granted 188,722 stock options with a related fair value of $7.07 per option and 90,907 restricted shares with a related fair value of $14.35 per share.

As of September 30, 2015, the total unrecognized share-based compensation balance for unvested options, net of expected forfeitures, was $1.9 million, which is expected to be amortized over a weighted-average period of 2.2 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. There were no options modified during the three and nine months endedSeptember 30, 2015 and 2014.

Nine months ended September 30,	2015		2014
Risk-free interest rate	1.7	%	2.0	%
Dividend yield (1)	—		—
Volatility	43	%	51	%
Expected life (in years)	6.0		5.9

(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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Income Taxes (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014	Dec. 31, 2014
Operating Loss Carryforwards [Line Items]
Provision for income taxes	$ 450	$ 727	$ 1,390	$ 1,659
Income (loss) before provision for income taxes	1,336	$ (313)	928	$ (5,865)
Provision for deferred tax liability related to foreign earnings to the U.S.	$ 8,700		8,700
Reduction in the deferred tax valuation allowance			$ 8,700
Federal Tax Authority [Member]
Operating Loss Carryforwards [Line Items]
Net operating losses					$ 179,700
Federal Tax Authority [Member] | Capital Loss Carryforward [Member]
Operating Loss Carryforwards [Line Items]
Capital loss carryforwards					110,500
State Tax Authority [Member]
Operating Loss Carryforwards [Line Items]
Net operating losses					100,700
State Tax Authority [Member] | Capital Loss Carryforward [Member]
Operating Loss Carryforwards [Line Items]
Capital loss carryforwards					24,000
Foreign Tax Authority [Member]
Operating Loss Carryforwards [Line Items]
Net operating losses					$ 97,300

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Product Warranty

9 Months Ended

Sep. 30, 2015

Product Warranties Disclosures [Abstract]

Product Warranty

Product Warranty

As of September 30, 2015, and December 31, 2014, MRV's product warranty liability recorded in accrued liabilities was $0.7 million and $0.6 million, respectively. 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, 2015 (in thousands):

Balance at beginning of the period	$	616
Cost of warranty claims	—
Accruals for product warranties	38
Balance at end of the period	$	654

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Net Income (Loss) Per Share

9 Months Ended

Sep. 30, 2015

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 net 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.

Employee equity share options, non-vested shares and similar equity instruments granted by MRV are treated as potential shares of common stock outstanding in computing diluted net income per share. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service not yet recognized, and the amount of income tax benefits that would be realized and recorded in additional paid-in capital if the deduction for the award would reduce income taxes payable are assumed to be used to repurchase shares on the open market.

The following table sets forth the computation of net income per common share – basic and diluted (in thousands, except per share amounts):

	Three months ended					Nine months ended
	September 30,					September 30,
	2015		2014			2015			2014
Numerator:
Net Income (loss)	$	886	$	(1,040	)	$	(462	)	$	(7,524	)
Denominator
Basic weighted average common shares outstanding	6,978		7,362			7,032			7,335
Effect of dilutive securities	36		—			—			—
Diluted weighted average common shares outstanding	7,014		7,362			7,032			7,335
Net income per common share
Basic	0.13		(0.14		)	(0.07		)	(1.03		)
Diluted	0.13		(0.14		)	(0.07		)	(1.03		)

Outstanding stock options to purchase 290,974 shares were excluded from the computation of dilutive income (loss) per shares for the three months ended September 30, 2015 as they were anti-dilutive. Outstanding stock options to purchase 413,901 shares were excluded from the computation of dilutive income (loss) per shares for the three months ended September 30, 2014, as they were anti-dilutive because of the net loss.

Outstanding stock options to purchase 407,480 and 369,321 shares were excluded from the computation of dilutive income (loss) per shares for the nine months ended September 30, 2015, and 2014, as they were anti-dilutive because of the net loss.

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Segment Reporting and Geographic Information

9 Months Ended

Sep. 30, 2015

Segment Reporting [Abstract]

Segment Reporting and Geographic Information

Segment Reporting and Geographic Information

MRV operates its business in two segments: the Network Equipment segment and the Network Integration segment. The Network Equipment segment designs, manufactures, distributes and services optical networking solutions and Internet infrastructure products. The Network Integration segment distributes network solutions and Internet infrastructure products and provides value-added integration and support services for customers' networks. The Network Integration segment consists principally of the business operations of our wholly-owned subsidiary, Tecnonet.  As discussed in Note 1, the Company announced on August 10, 2015 that they entered into a shares purchase agreement to sell all of the shares of Tecnonet.  The sale is subject to stockholder approval and is expected to take place at a special meeting of stockholders currently scheduled for December 1, 2015.  Upon completion of the sale, the Company will have a single reporting segment, the Network Equipment segment.

The accounting policies of the segments are the same as those described in the summary of significant accounting polices disclosed in MRV's2014Form 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,
	2015			2014			2015			2014
Network Equipment	$	22,974		$	21,979		$	69,787		$	66,131
Network Integration	14,343			21,237			49,126			62,644
Total before intersegment adjustments	37,317			43,216			118,913			128,775
Intersegment adjustments	(42		)	(46		)	(151		)	(163		)
Total	$	37,275		$	43,170		$	118,762		$	128,612

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 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 components sold as part of system solutions. Substantially all Network Integration's sales are within Italy.

One customer accounted for $24.4 million and $33.8 million of revenue in the Network Integration segment, or 21% and 26% of total revenue, for the nine months endedSeptember 30, 2015, and 2014, respectively. The same customer accounted for $7.5 million and $11.0 million of revenue in the Network Integration segment, or 20% and 25% of total revenue for the three months ended September 30, 2015 and 2014, respectively. The same customer accounted for 7% and 5% of total accounts receivable before allowance for doubtful accounts as of September 30, 2015, and December 31, 2014, respectively.

Another customer accounted for $16.5 million and $20.2 million of revenue in the Network Integration segment, or 14% and 16% of total revenue, for the nine months endedSeptember 30, 2015, and 2014, respectively. The same customer accounted for $4.8 million and $6.1 million of revenue in the Network Integration segment, or 13% and 14% of total revenue for the three months ended September 30, 2015 and 2014, respectively. The same customer accounted for 23% and 29% of total accounts receivable before allowance for doubtful accounts as of September 30, 2015, and December 31, 2014, respectively.

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

	Three months ended				Nine months ended
	September 30,				September 30,
	2015		2014		2015		2014
United States	$	10,368	$	13,254	$	34,239	$	39,665
Americas (Excluding the U.S.)	1,297		197		5,917		879
Europe	19,545		25,553		63,855		78,653
Asia Pacific	6,065		4,166		14,751		9,415
Total	$	37,275	$	43,170	$	118,762	$	128,612

Revenue from external customers attributed to Italy totaled $14.7 million and $21.2 million for the three months ended September 30, 2015 and 2014, respectively. Revenue from external customers attributed to Italy totaled $50.1 million and $63.0 million for the nine months ended September 30, 2015 and 2014, respectively. Revenue from external customers attributed to Australia totaled $5.7 million and $3.8 million for the three months ended September 30, 2015 and 2014, respectively. Revenue from external customers attributed to Australia totaled $13.5 million and $7.8 million for the nine months ended September 30, 2015 and 2014, respectively.

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

	September 30, 2015		December 31, 2014
Americas	$	2,961	$	3,078
Europe	1,622		1,786
Asia Pacific	20		26
Total	$	4,603	$	4,890

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2015			2014			2015			2014
Gross profit
Network Equipment	$	12,113		$	11,062		$	35,616		$	33,007
Network Integration	2,567			3,654			8,031			9,742
Total before intersegment adjustments	14,680			14,716			43,647			42,749
Corporate unallocated and intersegment adjustments(1)	(1		)	—			—			—
Total	$	14,679		$	14,716		$	43,647		$	42,749
Depreciation and amortization expense
Network Equipment	$	473		$	459		$	1,460		$	1,428
Network Integration	31			50			92			149
Corporate	29			52			87			111
Total	$	533		$	561		$	1,639		$	1,688
Operating income (loss)
Network Equipment	$	1,277		$	(953	)	$	1,599		$	(5,296	)
Network Integration	1,254			1,762			3,292			4,311
Total before intersegment adjustments	2,531			809			4,891			(985		)
Corporate unallocated operating loss and adjustments (1)	(1,345		)	(1,233		)	(3,713		)	(4,414		)
Total	$	1,186		$	(424	)	$	1,178		$	(5,399	)

(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,
	2015			2014
Additions (write-offs) of property and equipment
Network Equipment	$	1,168		$	1,736
Network Integration	74			95
Corporate	(6		)	83
Total	$	1,236		$	1,914

	September 30, 2015		December 31, 2014
Total Assets
Network Equipment	$	42,472	$	40,664
Network Integration	49,270		56,921
Corporate and intersegment eliminations	9,859		16,987
Total	$	101,601	$	114,572

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Organization and Summary of significant accounting policies (Narrative) (Details)	9 Months Ended
	Sep. 30, 2015 segment
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of business segments	2

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Segment Reporting and Geographic Information (External Revenue and Long-Lived Assets by Geographic Region) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014	Dec. 31, 2014
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 37,275	$ 43,170	$ 118,762	$ 128,612
Long-Lived Assets	4,603		4,603		$ 4,890
Americas [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-Lived Assets	2,961		2,961		3,078
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	10,368	13,254	34,239	39,665
Americas (Excluding the U.S.) [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	1,297	197	5,917	879
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	19,545	25,553	63,855	78,653
Long-Lived Assets	1,622		1,622		1,786
Italy [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	14,700	21,200	50,100	63,000
Asia Pacific [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	6,065	4,166	14,751	9,415
Long-Lived Assets	20		20		$ 26
Australia [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 5,700	$ 3,800	$ 13,500	$ 7,800

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Share Repurchase

9 Months Ended

Sep. 30, 2015

Equity [Abstract]

Share Repurchase

Share Repurchase

On December 16, 2014, the Company's Board of Directors approved a repurchase of shares of the Company's Common Stock in an amount up to $8.0 million under a share repurchase plan that expires on November 13, 2015. During the three months ended September 30, 2015, the Company repurchased 33,621 shares at a total cost of approximately $0.4 million excluding commission under this share repurchase plan. The Company has repurchased 502,077 shares at a total cost of approximately $4.9 million excluding commission under this share repurchase plan through September 30, 2015. As of September 30, 2015, the Company had remaining authority to repurchase shares up to an additional $3.1 million excluding commission under this share repurchase plan prior to its expiration.

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Credit Risk (Tables)

9 Months Ended

Sep. 30, 2015

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, 2015(in thousands):

Balance at beginning of period	$	1,758
Charged (reversed) to expense	—
Write-offs, net of amounts recovered	(106		)
Foreign currency translation adjustment	(57		)
Balance at end of period	$	1,595

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Segment Reporting and Geographic Information (Narrative) (Details) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2015 USD ($)	Sep. 30, 2014 USD ($)	Sep. 30, 2015 USD ($) segment	Sep. 30, 2014 USD ($)	Dec. 31, 2014
Segment Reporting Information [Line Items]
Number of business segments | segment			2
Revenue	$ 37,275	$ 43,170	$ 118,762	$ 128,612
Network Integration [Member]
Segment Reporting Information [Line Items]
Revenue	14,343	21,237	49,126	62,644
Network Integration [Member] | Major Customer, One [Member]
Segment Reporting Information [Line Items]
Revenue	$ 7,500	$ 11,000	$ 24,400	$ 33,800
Network Integration [Member] | Major Customer, One [Member] | Customer Concentration Risk [Member] | Revenue [Member]
Segment Reporting Information [Line Items]
Concentration percentage	20.00%	25.00%	21.00%	26.00%
Network Integration [Member] | Major Customer, One [Member] | Customer Concentration Risk [Member] | Accounts Receivable [Member]
Segment Reporting Information [Line Items]
Concentration percentage			7.00%		5.00%
Network Integration [Member] | Major Customer, Two [Member]
Segment Reporting Information [Line Items]
Revenue	$ 4,800	$ 6,100	$ 16,500	$ 20,200
Network Integration [Member] | Major Customer, Two [Member] | Customer Concentration Risk [Member] | Revenue [Member]
Segment Reporting Information [Line Items]
Concentration percentage	13.00%	14.00%	14.00%	16.00%
Network Integration [Member] | Major Customer, Two [Member] | Customer Concentration Risk [Member] | Accounts Receivable [Member]
Segment Reporting Information [Line Items]
Concentration percentage			23.00%		29.00%
Network Equipment [Member]
Segment Reporting Information [Line Items]
Revenue	$ 22,974	$ 21,979	$ 69,787	$ 66,131

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Intangible Assets (Amortization Expense, Maturity Schedule) (Details) $ in Thousands	Sep. 30, 2015 USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]
2015 - remaining balance	$ 82
2016	328
2017	280
2018	214
2019	214
Thereafter	96
Total	$ 1,214

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Condensed Consolidated Balance Sheets (unaudited) (Parenthetical) - $ / shares	Sep. 30, 2015	Dec. 31, 2014
Statement of Financial Position [Abstract]
Preferred stock, par value (usd per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (shares)	1,000,000	1,000,000
Preferred stock, shares issued (shares)	0	0
Preferred stock, shares outstanding (shares)	0	0
Common stock, par value (usd per share)	$ 0.0017	$ 0.0017
Common stock, shares authorized (shares)	16,000,000	16,000,000
Common stock, shares issued (shares)	8,330,000	8,242,000
Common stock, shares outstanding (shares)	6,972,000	7,386,000
Treasury stock, shares (shares)	1,359,000	856,000

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Credit Risk

9 Months Ended

Sep. 30, 2015

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 financial institutions and accounts receivable due from customers. Management believes that the financial institutions holding our cash and cash equivalents have high credit quality.

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. 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, 2015(in thousands):

Balance at beginning of period	$	1,758
Charged (reversed) to expense	—
Write-offs, net of amounts recovered	(106		)
Foreign currency translation adjustment	(57		)
Balance at end of period	$	1,595

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Share Repurchase (Narrative) (Details) - USD ($)	3 Months Ended	9 Months Ended		10 Months Ended
	Sep. 30, 2015	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Dec. 16, 2014
Equity, Class of Treasury Stock [Line Items]
Purchase of treasury shares		$ 4,943,000	$ 0
December 2014 Share Repurchase Agreement [Member]
Equity, Class of Treasury Stock [Line Items]
Stock repurchase program, authorized amount					$ 8,000,000.0
Treasury stock, shares acquired	33,621			502,077
Purchase of treasury shares	$ 400,000			$ 4,900,000
Stock repurchase program, remaining authorized repurchase amount	$ 3,100,000	$ 3,100,000		$ 3,100,000

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Inventories (Tables)

9 Months Ended

Sep. 30, 2015

Inventory Disclosure [Abstract]

Schedule of Inventory, Current

Inventories, net of reserves, consisted of the following (in thousands) at September 30, 2015 and December 31, 2014:

	September 30, 2015		December 31, 2014
Raw materials	$	3,267	$	3,663
Work-in process	637		641
Finished goods	16,166		17,379
Total	$	20,070	$	21,683

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Credit Risk (Changes in the Allowance for Doubtful Accounts) (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Allowance for Doubtful Accounts Receivable [Roll Forward]
Balance at beginning of period	$ 1,758
Charged (reversed) to expense	0	$ (80)
Write-offs, net of amounts recovered	(106)
Foreign currency translation adjustment	(57)
Balance at end of period	$ 1,595

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Short Term Debt

9 Months Ended

Sep. 30, 2015

Debt Disclosure [Abstract]

Short Term Debt

Short Term Debt

Short-term debt consists of unsecured lines of credit held by Tecnonet, the Company's Italian Network Integration subsidiary. As of September 30, 2015 and December 31, 2014, short-term debt totaled $2.9 million and $5.4 million, respectively. Short-term debt bears interest at rates ranging from 1.4% to 2.5%, and the weighted average interest rate was approximately 1.8% and 2.1% as of September 30, 2015andDecember 31, 2014, respectively. These obligations are incurred and settled in local currency.