<PAGE>

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


                                  FORM 10-K/A
                               (Amendment No. 1)

(Mark One)

[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

                   For the fiscal year ended December 31, 2000


[ ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

          For the transition period from _____________ to ____________

                         Commission file number 0-25678

                            MRV COMMUNICATIONS, INC.
                (Name of registrant as specified in its charter)


                  Delaware                                06-1340090
        (State or other jurisdiction of                (I.R.S. employer
         incorporation or organization)              identification number)

             20415 Nordhoff Street
             Chatsworth, California                         91311
      (Address of principal executive offices)            (Zip Code)

Issuer's telephone number: (818) 773-0900

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$0.0017 par value



Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]


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


State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: $433,597,540 based on the closing sale price at March 29, 2001 as reported
by The Nasdaq National Market.



State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 74,634,001 at March 31, 2001.

                      DOCUMENTS INCORPORATED BY REFERENCE:

                                      None


<PAGE>


                                EXPLANATORY NOTE

     This Amendment No. 1 on Form 10-K/A to the Annual Report on Form 10-K of
MRV Communications, Inc. filed on April 17, 2001 amends Item 7 and Item 8 for
the purpose of among other things amending certain disclosures in response to
comments received from the Securities and Exchange Commission.

     The amendment to Item 7 revises the disclosure regarding Luminent's
distribution and revises the table under the second paragraph within the
"General" section. In addition, the "Results of Operations" sections for the
years ended December 31, 2000 and 1999 and for the years ended December 31, 1999
and 1998 have been restated in their entirety to discuss the results of
operations for operating entities and development stage enterprises separately.
A new "Market Risks" section has been added, replacing the "Effects of
Inflation" and "Quantitative and Qualitative Disclosure about Market Risks"
sections previously reported.

     The amendments to Item 8 were as follows. The Consolidated Balance Sheet
has been revised due to reclassifications to conform the presentation.
Disclosures included in Note 2 Summary of Significant Accounting Policies, Note
3 Business Acquisitions, Note 4 Investments In Subsidiaries, Note 9 Interest
Rate Swap, Note 11 Commitments and Contingencies, Note 12 Stockholders' Equity,
Note 13 Segment Reporting and Geographical Information and Note 14 LAN Business
have been amended. Note 18 Events Subsequent to February 19, 2001 has been added
to disclose certain subsequent events. Schedule II has been amended to reflect
reclassifications presented in the financial statements. Other than these
amendments, Items 7 and 8 remain in the same form as initially filed.


                                       2
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

        This Report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following and elsewhere in this Report. The
following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Report.

GENERAL

        We create, acquire, finance and operate companies, and through them,
design, develop, manufacture and market products, which enable high-speed
broadband communications. We concentrate on companies and products devoted to
optical components and network infrastructure systems. We have leveraged our
early experience in fiber optic technology into a number of well-focused
operating units specializing in advanced fiber optic components, switching,
routing, transaction management and wireless optical transmission systems which
we have created, financed or acquired.

        During 2000, we completed several strategic acquisitions. These
acquisitions were made to expand our product offering, enhance our technological
expertise and expand our manufacturing capabilities. The table below summarizes
the more notable acquisitions.



<TABLE>
<CAPTION>
                                          Date of             Total               Form of Consideration and
         Acquired Company               Acquisition       Consideration          Other Notes to Acquisition
         ----------------               -----------       -------------          --------------------------
<S>                                  <C>                  <C>               <C>
Fiber Optic Communications, Inc.     April 24, 2000       $309.7 million    $48.6 million in cash and 5.4 million
                                                                            shares of common stock and options
                                                                            issued; approximately 97% of capital
                                                                            stock assumed; goodwill and other
                                                                            intangibles recorded of $261.5 million;
                                                                            deferred stock compensation recorded of
                                                                            $14.1 million


Jolt Limited                         May 1, 2000          $57.7 million     1.9 million shares of common stock and
                                                                            options issued; 100% of capital stock
                                                                            assumed; goodwill and other intangibles
                                                                            recorded of $33.7 million; deferred
                                                                            stock compensation recorded of $25.0
                                                                            million

Quantum Optech Inc.                  July 12, 2000        $36.1 million     1.2 million shares of common stock and
                                                                            options issued; 100% of capital stock
                                                                            assumed; goodwill and other intangibles
                                                                            recorded of $27.8 million; deferred stock
                                                                            compensation recorded of $2.7 million

AstroTerra Corporation               July 12, 2000        $160.3 million    2.4 million shares of common stock and
                                                                            options issued; 100% of capital stock
                                                                            assumed; goodwill and other intangibles
                                                                            recorded of $108.4 million; deferred
                                                                            stock compensation recorded of $50.0
                                                                            million

Optronics International Corp.        July 21, 2000        $123.9 million    4.2 million shares of common stock and
                                                                            options issued; approximately 99% of
                                                                            capital stock assumed; goodwill and
                                                                            other intangibles recorded of $99.4
                                                                            million; deferred stock compensation
                                                                            recorded of $13.4 million
</TABLE>



                                       3
<PAGE>
        Each of these acquisitions was accounted for using the purchase method
and therefore, the results of operations of the acquired businesses have been
included in our consolidated financial statements from the respective dates of
acquisition. Goodwill and other intangibles from these acquisitions totaled
$463.9 million. For the year ended December 31, 2000, we recorded amortization
of goodwill and other intangibles from these acquisitions of $60.6 million. We
expect to record amortization charges of goodwill and other intangibles for
these acquisitions of approximately $26.6 million per quarter until December 31,
2001. At January 1, 2002, we intend to implement SFAS No. 142, "Goodwill and
other Intangible Assets" (see Recently Issued Accounting Standards below).

        In connection with these acquisitions, a portion of the purchase prices
paid represented deferred stock compensation relating to options to purchase our
common stock. The fair values of these options were $105.2 million and have been
recorded as deferred stock compensation. Deferred stock compensation
amortization expense for the year ended December 31, 2000, relating to these
stock options was approximately $42.7 million. We expect to incur approximately
$33.4 million of total deferred stock compensation, which will be fully
amortized by 2004. Deferred stock compensation is being amortized using the
graded method using an estimated employment period of four years.

        Fiber Optic Communications, Quantum Optech and Optronics International
were acquired and contributed to Luminent as part of our plan to complete an
initial public offering of our fiber optics components business and eventually
spin-off this business to our stockholders. Fiber Optic Communications develops
and manufactures passive fiber optic components for wavelength division
multiplexing. Quantum Optech specializes in developing and manufacturing optical
thin film coating and filters for dense wavelength division multiplexing.
Optronics focuses on developing and manufacturing high temperature semiconductor
lasers, transceivers and detectors for optical networks. These acquisitions also
provided additional manufacturing capabilities for future growth.

        In July 2000, we and our subsidiary, Luminent, entered into employment
agreements with Luminent's President and Chief Executive Officer and its Vice
President of Finance and Chief Financial Officer. The agreements provide for
annual salaries, performance bonuses and combinations of stock options to
purchase shares of our common stock and Luminent's common stock. The stock
options were granted to Luminent's executives at exercise prices below market
value, resulting in deferred stock compensation. Deferred stock compensation
from these stock option grants reported for the year ended December 31, 2000 was
$54.2 million, and we will incur additional deferred stock compensation of
approximately $2.6 million through 2004.

        AstroTerra and Jolt were acquired and contributed to our subsidiary,
Optical Access, which focuses on optical wireless products that deliver
high-speed communications traffic to the so-called last mile portion of the
communications network and eventually spin-off this business to our
stockholders. AstroTerra develops and manufactures free-space optical wireless
communication systems to connect data and telecommunications networks. Jolt
develops and manufactures multi-port wireless optics communications equipment.
These acquisitions provided strategic components and technology for Optical
Access' wireless optical solution.

        On October 6, 2000, our wholly-owned subsidiary Optical Access filed a
registration statement with the Securities and Exchange Commission for the
initial public offering of its common stock. This offering has not been
completed and, based on current market conditions, we do not expect it to be
completed in the foreseeable future, if ever. Accordingly, on November 16, 2001,
Optical Access submitted an application to the SEC to withdraw its registration
statement. Due to the postponement of the transaction, we expensed all costs
($1.1 million) of the offering in the second quarter of 2001. Optical Access
designs, manufactures and markets an optical wireless solution that delivers
high-speed communications traffic to the portion of the communications network
commonly known as the last mile, which extends from the end user to the service
provider's central office.

        We reported a net loss of $153.0 million for the year ended December 31,
2000. A significant portion of the net loss was due to the amortization of
goodwill and other intangibles and deferred stock compensation related to our
recent acquisitions and our employment arrangements with Luminent's President
and Chief Financial Officer. We will continue to record amortization of goodwill
and other intangibles until December 31, 2001, and deferred stock compensation
through 2004 relating to these acquisitions and Luminent's employment
arrangements with its executives. Effective January 1, 2002, the adoption of
SFAS 142 will stop amortization of goodwill, however, it may require us to
record an impairment charge (see Recently Issued Accounting Standards). As a
consequence


                                       4
<PAGE>
of these charges, we do not expect to report net income in the foreseeable
future. See discussion of the impact on the amortization of goodwill and other
intangibles due to the adoption of SFAS 142 as of January 1, 2002 (see Recently
Issued Accounting Standards).

        On November 10, 2000, Luminent completed the initial public offering of
its common stock, selling 12.0 million shares at $12.00 per share for net
proceeds of approximately $132.3 million. Luminent designs, manufactures and
sells a comprehensive line of fiber optic components that enable communications
equipment manufactures to provide optical networking equipment for the rapidly
growing metropolitan and access segments of the communications networks. While
we had planned to distribute all of our shares of Luminent common stock to our
stockholders, unfavorable business and economic conditions in the fiber optic,
data networking and telecommunications industries and the resulting adverse
effects on the market prices of our common stock and Luminent's common stock has
caused us to determine to abandon the distribution and merge Luminent into MRV
Merger Sub, our wholly-owned subsidiary, thereby eliminating public ownership of
Luminent.

Results of Operations

        The following table sets forth, for the periods indicated, our
statements of operations data expressed as a percentage of revenues.


                                       5
<PAGE>

<TABLE>
<CAPTION>
                                                                              Year ended December 31,
                                                               ----------------------------------------------------
                                                                   1998                1999                2000
                                                               ------------        ------------        ------------
<S>                                                            <C>                 <C>                 <C>
Revenues, net                                                           100%                100%                100%

Cost of goods sold                                                       63                  68                  64

Research and development                                                 10                  12                  23

Selling, general and administrative                                      20                  23                  39

Purchased technology in progress                                          8                   -                   -

Restructuring costs                                                       6                   -                   -

Amortization of goodwill and other intangibles                            1                   1                  21
                                                                        ---                 ---                 ---
Operating income (loss)                                                  (8)                 (6)                (47)

Other income (expense), net                                               2                   -                  (3)
                                                                        ---                 ---                 ---
Income (loss) before provision for income taxes, minority                (6)                 (5)                (50)
  interests and extraordinary items

Provision (benefit) for income taxes                                      2                  (1)                 (2)

Minority interests                                                       (1)                  -                   -

Gain on extraordinary items, net of tax                                   1                   -                   -
                                                                        ---                 ---                 ---
Net income (loss)                                                        (8)%                (4)%               (48)%
                                                                        ===                 ===                 ===
</TABLE>


                                       6
<PAGE>

YEARS ENDED DECEMBER 31, 2000 AND 1999

REVENUES, NET

     We generally recognize product revenue, net of sales discounts 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 probable. Products are
generally shipped "FOB shipping point" with no rights of return. Sales with
contingencies, such as rights of return, rotation rights, conditional acceptance
provisions and price protection, are rare and insignificant and are deferred
until the contingencies have been satisfied or the contingent period has lapsed.
We generally warrant our products against defects in materials and workmanship
for one year. 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. Our major revenue-generating
products consist of: optical passive and active components; switches and
routers; remote device management; and network physical infrastructure
equipment. Revenue generated through the sales of services and systems support
has been insignificant in relation to our consolidated revenues.

     Operating Entities.  Revenue for the year ended December 31, 2000 increased
$30.9 million or 11% to $319.4 million from $288.5 million for the year ended
December 31, 1999. Revenue generated through our recent acquisitions for the
year ended December 31, 2000 was $38.6 million. No acquisitions were made during
the year of 1999. Revenue from our existing business was $280.8 million and
$288.5 million for the years ended December 31, 2000 and 1999, respectively.
This change represents a decrease of $7.7 million or 3% for the year ended
December 31, 2000 due to a decrease of approximately $37.0 million or 27% due to
our decision to discontinue the production and sale of LAN switches and remote
device management products. We made this decision in order to focus on the
emerging carrier and service providers' market segment where the sales cycle is
significantly greater than the enterprise networks

                                        7
<PAGE>

market. This decrease was offset by the growth in the fiber optic components
business of approximately $22.0 million due to the increase in market demand
created by carrier equipment manufacturers. Our various other products
substantially accounted for the remaining increase of approximately $7.0 million
or 9% for the year ended December 31, 2000.

     Development Stage Enterprises.  No significant revenues were generated by
these entities for the years ended 2000 and 1999.

GROSS PROFIT

     Gross profit is equal to our revenues less our cost of goods sold. Our
cost of goods sold includes materials, direct labor and overhead. Cost of
inventory is determined by the first-in, first-out method.

     Operating Entities.  Gross profit for the year ended December 31, 2000
increased $24.9 million, or 27% to $116.0 million from $91.1 million for the
year ended December 31, 1999. Our gross margin (defined as gross profit as a
percentage of revenues) increased to 36% for the year ended December 31, 2000
from 32% for the year ended December 31, 1999. Prior to deferred stock
compensation amortization expense, MRV's gross margin would have increased to
$124.3 million or 39% for the year ended December 31, 2000 compared to $91.1
million or 32% for the year ended December 31, 1999. Our margins increased due
to a favorable shift in product mix towards higher margin product lines, such as
those for third generation wireless networks and other Internet infrastructure
products.

     Development Stage Enterprises.  No significant gross profits were generated
by these entities for the years ended 2000 and 1999.

RESEARCH AND DEVELOPMENT (R&D)

     R&D expenses increased $38.8 million or 110% to $74.1 million for the year
ended December 31, 2000 from $35.3 million for the year ended December 31, 1999.

     Operating Entities.  R&D expenses of the operating entities were $32.6
million or 10% of revenues for the year ended December 31, 2000 as compared to
$15.3 million or 5% of revenues for the year ended December 31, 1999. This
represents an increase of $17.3 million or 113% for the year ended December 31,
2000. Prior to deferred stock compensation amortization expense of $21.6 million
for the year ended December 31, 2000, R&D expenses would have been $11.0 million
or 3% of revenues compared to $15.3 million or 5% of revenues. This represents a
decrease of $4.3 million or 28% for the year ended December 31, 2000.

     Development Stage Enterprises.  R&D expenses of the development stage
enterprises increased by $21.5 million or 108% to $41.5 million or 13% of
revenues for the year ended December 31, 2000 compared to $20.0 million or 7% of
revenues for the year ended December 31, 1999. Our increased spending in R&D
illustrates our commitment to continued product development and technological
expansion. Additionally, R&D from our consolidated development stage
enterprises continued to increase as those enterprises strive towards bringing
new products to market.

SELLING, GENERAL AND ADMINISTRATIVE (SG&A)

     Operating Entities.  SG&A expenses increased $56.8 million, or 84%, to
$124.7 million from $67.9 for the year ended December 31, 1999. SG&A expenses
were 39% of revenues for the year ended December 31, 2000 compared to 24% of
revenue for the year ended December 31, 1999. Prior to the amortization of
deferred stock compensation of $30.0 million for the year ended December 31,
2000, SG&A expenses would have been $94.7 million or 30% of revenues. This
represents an increase of $26.8 million or 39% for the year ended December 31,
2000 primarily as a result of our recent acquisitions. We also increased
personnel and related costs in our operating entities during the year ended
December 31, 2000.

     Development Stage Enterprises.  The development stage enterprises did not
report SG&A expenses during the years of 2000 and 1999 as their activities
primarily involved the research development of products and they had yet to
develop administrative and selling functions.

                                       8
<PAGE>

AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES

     Amortization of goodwill and other intangibles increased $62.9 million to
$66.8 million from $3.9 million for the year ended December 31, 2000 and 1999,
respectively. Furthermore, as we continue to engage in strategic acquisitions,
additional goodwill and other intangibles may be recorded.

OTHER EXPENSES, NET.

     We incurred $4.5 million in interest expense relating to the Notes for
each year ended December 31, 2000 and 1999, respectively. The increase in other
expense is primarily attributed to our share of losses from our unconsolidated
development stage enterprises of $7.3 million for the year ended December 31,
2000. For the year ended December 31, 1999, these entities were included in
our consolidated statements of operations based on our ownership in those
enterprises. The remaining components of other expense, principally represent
interest income recognized from short-term and long-term investments.

PROVISION (BENEFIT) FOR INCOME TAXES

     The benefit for income taxes for the year ended December 31, 2000 was $5.4
million, compared to $2.2 million for the year ended December 31, 1999. Our
income tax expense fluctuates primarily due to the tax jurisdictions where we
currently have operating facilities and the varying tax rates in those
jurisdictions.

YEARS ENDED DECEMBER 31, 1999 AND 1998

REVENUES, NET

     Operating Entities.  Revenues for the year ended December 31, 1999
increased 9%, to $288.5 million from $264.1 million for the year ended December
31, 1998. Revenues from sales of networking products (switches, routers and
remote device management) and optical components products were 65% and 25%,
respectively, and service and others represent 10% of total revenues during the
year ended December 31, 1999 compared to 72%, 15% and 13% respectively, of total
revenues during the year ended December 31, 1998. Revenue increased as a result
of greater marketing efforts and wider market acceptance of our products, both
domestically and internationally. International sales accounted for
approximately 58% of revenues for the year ended December 31, 1999, compared to
59% of revenues for the year ended December 31, 1998.

     Development Stage Enterprises.  No significant revenues were generated by
these entities for the years ended December 31, 1999 and 1998.

GROSS PROFIT

     Operating Entities.  Gross profit for the year ended December 31, 1999
decreased $7.6 million, or 8%, to $91.1 million from $98.7 million for 1998.
Our gross margin decreased to 32% for the year ended December 31, 1999 from
37% during the year ended December 31, 1998 as a result of its decision to exit
the LAN switching business. During the last two years, we endured intense price
competition from our larger competitors. We had planned to compensate for this
price competition by introducing new lower cost products during 1998. We began
shipping these products in the last quarter of 1998, however, the
commoditization of these products and the economies of scale and manufacturing
advantages of our larger competitors were too difficult for us to overcome. We
recorded a charge of $13.8 million in 1999 to reduce that inventory to net
realizable value. Also in February 2000, we decided to exit the LAN switching
business.

     Development Stage Enterprises.  No significant gross profits were produced
by these entities during the years ended December 31, 1999 and 1998.

                                       9
<PAGE>

RESEARCH AND DEVELOPMENT (R&D)

     R&D expenses increased $9.5 million, or 37%, to $35.3 million for the year
ended December 31, 1999 from $25.8 million for the year ended December 31, 1998.
R&D expenses as a percentage of revenues increased to 12% of revenues during the
year ended December 31, 1999, from 10% of revenues for year ended December 31,
1998. This increase was primarily caused by additional development projects
commenced during 1999 and associated personnel costs. We intend to continue to
invest in the research and development of new products as we believe that our
ability to develop and commercialize new products is our key competitive factor.
The segmentation below illustrates our change of strategy during 1999, where
substantial amounts of the resources were directed to the R&D activities in the
development stage enterprises.

     Operating Entities.  R&D expenses of the operating entities were $15.3
million or 5% of revenues for the year ended December 31, 1999 compared to $23.8
million or 9% of revenue for the year ended December 31, 1998. This represents a
decrease of $8.5 million or 36% for the year ended December 31, 1999. As
discussed above, this reduction is due to the shifting of resources to
development stage enterprises.

     Development Stage Enterprises.  R&D expenses of the development stage
enterprises were $20.0 million or 7% of revenues for the year ended December 31,
1999 as compared to $2.0 million or 1% of revenues for the year ended December
31, 1998. This represents an increase of $18.0 million or 900% for the year
ended December 31, 1999. As discussed above, this increase is due to the
shifting of resources to development stage enterprises.

SELLING, GENERAL AND ADMINISTRATIVE (SG&A)

     Operating Entities.  SG&A expenses increased $14.0 million, or 26%, to
$67.9 million for the year ended December 31, 1999 from $53.9 million for the
year ended December 31, 1998. SG&A expenses were 24% of revenue for the year
ended December 31, 1999, compared to 20% of revenue for the year ended December
31, 1998. The increase in SG&A expense, both in absolute dollars and as a
percentage of revenue were due primarily to substantial increases in marketing
efforts as well as increased personnel and overhead costs in additional and
expanded locations.

     Development Stage Enterprises.  The development stage enterprises did not
report SG&A expenses during the years of 1999 and 1998.

PURCHASED TECHNOLOGY IN PROGRESS AND RESTRUCTURING COSTS

     Purchased technology in progress for the year ended December 31, 1998 was
$20.6 million. The purchased technology in 1998 was related to R&D projects in
progress at the time we acquired Xyplex on January 30, 1998, which had not yet
reached technological feasibility and for which we had no alternative future
use. The majority of this charge related to the EdgeBlaster(TM) technology. The
related products were being designed to provide integrated switching at the seam
where the enterprise network meets the wide area public network, including the
Internet. The research and development was completed as planned before the end
of fiscal year 1998 and all expenses to complete the projects were included in
research and development during the year with no material variances between
projected and actual results. Restructuring costs during the year ended December
31, 1998 were $15.7 million. The restructuring costs in 1998 were associated
with our plan adopted in March 1998 calling for the reduction of workforce,
closing of certain facilities, elimination of particular product lines,
settlement of distribution agreements and other costs. The restructuring plan
was completed as originally anticipated, except for the following items. The
restructuring costs incurred in the first quarter of 1998 were offset by a
restructuring credit of $7.5 million booked during the last quarter of 1998 in
connection with our decision to consolidate the Xyplex and NBase
organizations. This credit principally resulted from the renegotiation of
Xyplex's lease in Littletown, Massachusetts and a reevaluation reducing the
anticipated cost of discontinuing some of Xyplex's legacy products. We did not
incur these charges or receive a similar credit in 1999.

                                       10
<PAGE>

AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES

     Amortization of goodwill and other intangibles increased $1.0 million to
$3.9 million from $2.9 million for the year ended December 31, 1999 from 1998,
respectively. Furthermore, as we continue to engage in strategic acquisitions,
additional goodwill and other intangibles may be recorded.

OTHER EXPENSE, NET

     In November 1998, we repurchased $10.0 million face amount of the Notes at
a discount from par resulting in a gain of $2.8 million recorded in the fourth
quarter of 1998. The outstanding Notes resulted in interest expense of $2.5
million for the year ended December 31, 1998 and $4.5 million for the year ended
December 31, 1999. These expenses were offset by interest income from various
investments of approximately $5.0 million and $6.9 million for the years ended
December 31, 1999 and 1998, respectively.




                                       11
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     On November 10, 2000, Luminent completed the initial public offering of its
common stock, selling 12.0 million shares at $12.00 per share and raising net
proceeds of approximately $132.3 million.

     Cash, cash equivalents and restricted cash were $266.3 million at December
31, 2000, compared to $34.3 million at December 31, 1999. As of December 31,
2000, we had working capital of $366.8 million, compared with $106.4 million as
of December 31, 1999. The ratio of current assets to current liabilities at
December 31, 2000 was 4.3 to 1, compared to 3.1 to 1 at December 31, 1999. This
is primarily due to the consolidation of MRV's recent acquisitions, cash
utilized for acquisitions and the cash Luminent received from its initial public
offering.

     Cash used in operating activities was $29.8 million for the year ended
December 31, 2000, compared to cash provided by operating activities of $2.0
million for the year ended December 31, 1999. Cash used in operating activities
was primarily impacted by our net loss, partially offset by the amortization
of goodwill and other intangibles and amortization of deferred stock
compensation. The increase in cash used in operating activities was also a
result of an overall increase in our current assets.

     Cash provided by investing activities was $9.2 million for year ended
December 31, 2000, compared to cash provided by investing activities of $6.2
million for the year ended December 31, 1999. We spent approximately $24.0
million on the purchase of property and equipment for business expansion and
increased manufacturing capacity. We purchased approximately $21.6 million in
investments primarily in partner companies. We also received cash of $97.7
million from the sale of investments, which was offset by net cash used in our
recent acquisitions and equity purchases of $44.5 million.

     Cash provided by financing activities was primarily generated through
net proceeds from Luminent's initial public offering and long term borrowings.
Cash provided by long term borrowings was $62.7 million for the year ended
December 31, 2000 offset by payments of approximately $4.0 million. Net
proceeds from Luminent's initial public offering were $132.3 million. Net
proceeds from the issuance of our common stock were $7.8 million and $10.8
million for the years ended December 31, 2000 and 1999, respectively.

                                       12

<PAGE>

     In June 1998, we issued $100.0 million principal amount of 5% convertible
subordinated debentures due in 2003 in a private placement raising net proceeds
of $96.4 million. The debentures are convertible into our common stock at a
conversion price of $13.52 per share (equivalent to a conversion rate of
approximately 73.94 shares per $1,000 principal amount of notes), representing
an initial conversion premium of 24%, for a total of approximately 7.4 million
shares of our common stock. The debentures bear interest at 5% per annum, which
is payable semi-annually on June 15 and December 15 of each year. The debentures
have a five-year term and have been callable by us since June 15, 2001. The
premiums payable to call the debentures are 102% of the outstanding principal
amount during the 12 months ending June 14, 2002 and 101% during the 12 months
ending June 14, 2003, plus accrued interest through the date of redemption.

     We believe that our cash flows from operations will be sufficient to
satisfy our working capital, capital expenditure and research and development
requirements for at least the next 12 months. However, we may require or choose
to obtain additional debt or equity financing in order to finance acquisitions
or other investments in our business. We will continue to devote resources for
expansion and other business requirements. Our future capital requirements will
depend on many factors, including acquisitions, our rate of revenue growth, the
timing and extent of spending to support development of new products and
expansion of sales and marketing, the timing of new product introductions and
enhancements to existing products and market acceptance of our products.

MARKET RISKS

     Market risk represents the risk of loss that may impact our Consolidated
Financial Statements through adverse changes in financial market prices and
rates and inflation. Our market risk exposure results primarily from
fluctuations in interest rates and foreign exchange rates. We manage our
exposure to these market risks through our regular operating and financing
activities and have not historically hedged these risks through the use of
derivative financial instruments. The term "hedge" is used to mean a strategy
designed to manage risks of volatility in prices or interest and foreign
exchange rate movements on certain assets, liabilities or anticipated
transactions and creates 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.

     Interest Rates.  We are exposed to interest rate fluctuations on our
investments, short-term borrowings and long-term obligations. 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 due to
their short-term maturities. Our long-term obligations were entered into with
fixed and variable interest rates. In connection with our $50.0 million
variable-rate term loan due in 2003, we entered into a specific hedge, an
interest rate swap, to modify the interest characteristics of this instrument.
The interest rate swap was used to reduce our cost of financing and the
fluctuations in the aggregate interest expense. The notional amount, interest
payment and maturity dates of the swap match the principal, interest payment and
maturity dates of the related debt. Accordingly, any market risk or opportunity
associated with this swap is offset by the opposite market impact on the related
debt. To date, we have not entered into any other derivative instruments,
however, as we continue to monitor our risk profile, we may enter into
additional hedging instruments in the future.

     Foreign Exchange Rates.  We operate on an international basis with a
portion of our revenues and expenses being incurred in currencies other than the
U.S. dollar. Fluctuations in the value of these foreign currencies in which we
conduct our business relative to the U.S. dollar 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 expenses and revenues in each of the principal
functional currencies, the exposure to our financial results to currency
fluctuations is reduced. We have not historically attempted to reduce our
currency risks through hedging instruments; however, we may do so in the future.

                                       13
<PAGE>

     Inflation.  We believe that the relatively moderate rate of inflation in
the United States over the past few years has not had a significant impact on
our sales or operating results or on the prices of raw materials. However, in
view of our recent expansion of operations in Taiwan, Israel and other
countries, which have experienced substantial inflation, there can be no
assurance that inflation will not have a material adverse effect on our
operating results in the future.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1998 and June 1999, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Investments and Hedging Activities," and SFAS No. 137, which
delayed the effective date of SFAS No. 133. In June 2000, the FASB issued SFAS
No. 138, which provides additional guidance for the application of SFAS No. 133
for certain transactions. MRV will adopt the statement in January 2001 and does
not expect the adoption of this statement to have a material impact on its
financial position or results of operations.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements," and related interpretations. SAB 101 summarized certain of the
Securities and Exchange Commission's views in applying accounting principles
generally accepted in the United States to revenue recognition in financial
statements. MRV has applied the provisions of SAB 101 in the consolidated
financial statements. The adoption of SAB 101 did not have a material impact on
its financial condition or results of operations.

     In March 2000, the FASB issued interpretation No. 44 (FIN 44), "Accounting
for Certain Transactions involving Stock Compensation, an interpretation of APB
Opinion No. 25." FIN 44 clarifies the application of APB No. 25 for certain
issues, including the definition of an employee, the treatment of the
acceleration of stock options and the accounting treatment for options assumed
in business combinations. FIN 44 became effective on July 1, 2000, but is
applicable for certain transactions dating back to December 1998. The adoption
of FIN 44 did not have a significant impact on its financial position or results
of operations.


                                       14
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements are filed as part of this Report:

<TABLE>
<CAPTION>
                                                                                         PAGE
                                                                                         ----
<S>                                                                                      <C>
Report of Independent Public Accountants................................................. F-1

Consolidated Balance Sheets as of December 31, 1999 and 2000............................. F-2

Consolidated Statements of Operations for each of the three years in the period
   ended December 31, 2000............................................................... F-3

Consolidated Statements of Stockholders' Equity and Comprehensive Loss for each
   of the three years in the period ended December 31, 2000.............................. F-4

Consolidated Statements of Cash Flows for each of the three years in the period
   ended December 31, 2000............................................................... F-5

Notes to Consolidated Financial Statements............................................... F-6
</TABLE>



                                       15
<PAGE>
                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)     (1)    The financial statements filed as a part of this Report consist
               of the financial statements listed under Item 8.

        (2)    The financial statements schedules filed as part of this report
               consist of the following:

               Schedule II --Valuation and Qualifying Accounts

               Report of Independent Public Accountants on Financial
               Statement Schedule

        (3)    The following exhibits are filed as part of this Report:


<TABLE>
<CAPTION>
    EXHIBIT NO.                         DESCRIPTION
    -----------                         -----------
<S>                 <C>
        2.1         Agreement and Plan of Merger by and between MRV
                    Technologies, Inc. (a California corporation) and MRV
                    Technologies, Inc. (a Delaware corporation), as amended
                    (incorporated by reference to Exhibit 2a filed as part of
                    Registrant's Registration Statement on Form S-1 (File No.
                    33-48003)).

        2.2         Certificate of Merger by and between MRV Technologies, Inc.
                    (a California corporation) and MRV Technologies, Inc. (a
                    Delaware corporation) (incorporated by reference to Exhibit
                    2b filed as part of Registrant's Registration Statement on
                    Form S-1 (File No. 33-48003)).

        3.1         Certificate of Incorporation, as amended (incorporated by
                    referenced to Exhibit 3a filed as part of Registrant's
                    Registration Statement on Form S-1 (File No. 33-48003)).

        3.2         Certificate of Amendment of Certificate of Incorporation
                    filed with the Delaware Secretary of State on March 20, 1996
                    (incorporated by reference to Exhibit 3.2 of the Company's
                    Form 10-Q for the quarter ended June 30, 1998 filed August
                    14, 1998).

        3.3         Certificate of Amendment of Certificate of Incorporation
                    filed with the Delaware Secretary of State on July 29, 1996
                    (incorporated by reference to Exhibit 3.3 of the Company's
                    Form 10-Q for the quarter ended June 30, 1998 filed August
                    14, 1998).

        3.4         Certificate of Amendment of Certificate of Incorporation
                    filed with the Delaware Secretary of State on November 19,
                    1998 (incorporated by reference to Exhibit 3.4 of the
                    Company's Form 10-K for the year ended December 31, 1998
                    filed March 31, 1999).

        3.5         Certificate of Amendment of Certificate of Incorporation
                    filed with the Delaware Secretary of State on May 11, 2000.

        3.6         Bylaws (incorporated by reference to Exhibit 3b filed as
                    part of Registrant's Registration Statement on Form S-1
                    (File No. 33-48003)).

        4.1         Specimen certificate of Common Stock (incorporated by
                    reference to Exhibit 4.5 filed as part of Registrant's
                    Registration Statement on Form S-3 (File No. 333-64017).

        4.2         Specimen of Restricted Global Security (incorporated by
                    reference to Exhibit 4.3 of the Company's Form 10-Q for the
                    quarter ended June 30, 1998 filed August 14, 1998).
</TABLE>

                                       16
<PAGE>

<TABLE>
<CAPTION>
    EXHIBIT NO.                         DESCRIPTION
    -----------                         -----------
<S>                 <C>
        10.1        Lease for premises at 8917 Fullbright Avenue, Chatsworth, CA
                    dated August 5, 1991 (incorporated by reference to Exhibit
                    10a filed as part of Registrant's Registration Statement on
                    Form S-1 (File No. 33-48003)).

        10.2        Lease for premises at 8943 Fullbright Avenue, Chatsworth, CA
                    dated March 3, 1993 (incorporated by reference to Exhibit
                    10a(1) filed as part of Registrant's Registration Statement
                    on Form S-1 (File No. 33-48003)).

        10.3        Key Employee Agreement between the Company and Noam Lotan
                    dated March 23, 1993 (incorporated by reference to Exhibit
                    10b(1) filed as part of Registrant's Registration Statement
                    on Form S-1 (File No. 33-48003)).

        10.4        Letter amending Key Employee Agreement between the Company
                    and Noam Lotan (incorporated by reference to Exhibit 10b(1)1
                    filed as part of Registrant's Registration Statement on Form
                    S-1 (File No. 33-48003)).

        10.5        Letter amending Key Employee Agreement between the Company
                    and Noam Lotan (incorporated by reference to Exhibit 10b(1)2
                    filed as part of Registrant's Registration Statement on Form
                    S-1 (File No. 33-48003)).

        10.6        Key Employee Agreement between the Company and Zeev Rav-Noy
                    dated March 23, 1992 (incorporated by reference to Exhibit
                    10b(2) filed as part of Registrant's Registration Statement
                    on Form S-1 (File No. 33-48003)).

        10.7        Letter amending Key Employee Agreement between the Company
                    and Zeev Rav-Noy (incorporated by reference to Exhibit
                    10b(2) filed as part of Registrant's Registration Statement
                    on Form S-1 (File No. 33-48003)).

        10.8        Letter amending Key Employee Agreement between the Company
                    and Zeev Rav-Noy (incorporated reference to Exhibit 10b(2)
                    filed as part of Registrant's Registration Statement on Form
                    S-1 (File No. 33-48003)).

        10.9        Key Employee Agreement between the Company and Shlomo
                    Margalit (incorporated by reference to Exhibit 10b(3) filed
                    as part of Registrant's Registration Statement on Form S-1
                    (File No. 33-48003)).

        10.10       Letter amending Key Employee Agreement between the Company
                    and Shlomo Margalit (incorporated by reference to Exhibit
                    10b(3)1 filed as part of Registrant's Registration Statement
                    on Form S-1 (File No. 33-48003)).

        10.11       Form of Letter amending Key Employee Agreement between the
                    Company and Shlomo Margalit (incorporated reference to
                    Exhibit 10b(3)2 filed as part of Registrant's Registration
                    Statement on Form S-1 (File No. 33-48003)).

        10.12       Employment Letter between the Company and Khalid (Ken) Ahmad
                    dated August 8, 1990 (incorporated by reference to Exhibit
                    10b(4) filed as part of Registrant's Registration Statement
                    on Form S-1 (File No. 33-48003).

        10.13       MRV Communications Inc. Incentive Plan for Grant of Warrants
                    to Employees Subsidiaries (incorporated by reference to
                    Exhibit No. 10.21 of Registrant's Annual Report on Form 10-K
                    (0-23452) for the year ended December 31, 1996 filed April
                    15, 1997).
</TABLE>


                                       17
<PAGE>

<TABLE>
<CAPTION>
    EXHIBIT NO.                         DESCRIPTION
    -----------                         -----------
<S>                 <C>
        10.14       Standard Industrial/Commercial Single-Tenant Lease dated
                    October 8, 1996 between the Company and Nordhoff Development
                    relating to the premises located at 20415 Nordhoff Street,
                    Chatsworth, California (incorporated by reference to Exhibit
                    No. 10.23 of Registrant's Annual Report on Form 10-K for the
                    year ended December 31, 1996 filed April 15, 1997).

        10.15       Stock Purchase Agreement dated January 19, 1998 by and
                    between Whittaker and Registrant (incorporated by reference
                    to Exhibit No. 2.1(a) of Registrant's Report on Form 8-K
                    filed February 13, 1998 with respect to the Xyplex
                    Acquisition).

        10.16       Warrant Agreement dated January 30, 1998 by and between
                    Whittaker and Registrant (incorporated by reference to
                    Exhibit No. 2.1(b) of Registrant's Report on Form 8-K filed
                    February 13, 1998 with respect to the Xyplex Acquisition).

        10.17       Warrant Certificate No. Whittaker #1 to purchase 421,402
                    shares of Common Stock of Registrant issued to Whittaker on
                    January 30, 1998 (incorporated by reference to Exhibit No.
                    2.1(c) of Registrant's Report on Form 8-K filed February 13,
                    1998 with respect to the Xyplex Acquisition).

        10.18       American Industrial Real Estate Association, Standard
                    Industrial/ Commercial Single-Tenant Lease - Net dated
                    November 17, 1997 by and between Ruth G. Fisher Living Trust
                    U/D/T dated June 28, 1990 and Registrant relating to the
                    premises located at 8928 Fullbright Avenue, Chatsworth,
                    California (incorporated by reference to Exhibit No. 10.35
                    of Registrant's Report on Form 10-K for the year ended
                    December 31, 1997 filed April 15, 1998).

        10.19       New Lease dated February 22, 1993 by and between 495
                    Littleton Associates and Xyplex, Inc. relating to the
                    premises located at 295 Foster Street, Littleton, Mass,
                    Amendments Nos. 1 through 4 thereto (incorporated by
                    reference to Exhibit No. 10.36 of Registrant's Report on
                    Form 10-K for the year ended December 31, 1997 filed April
                    15, 1998).

        10.20       Fifth Amendment to Lease relating to the premises located at
                    295 Foster Street, Littleton, Mass. with attached Lease
                    Guaranty of Registrant (incorporated by reference to Exhibit
                    10.31 of the Company's Form 10-K for the year ended December
                    31, 1998 filed March 31, 1999).

        10.21       Underwriting Agreement dated September 18, 1997 by and among
                    Registrant, the Selling Stockholders named on Schedule I
                    thereto and the Underwriters named on Schedule II thereto
                    (incorporated by reference to Exhibit No. 10.37 of
                    Registrant's Report on Form 10-K for the year ended December
                    31, 1997 filed April 15, 1998).

        10.22       Indenture, dated as of June 26, 1998, between the Company
                    and American Stock Transfer & Trust Company, as Trustee,
                    relating to the Company's 5% Convertible Subordinated Notes
                    Due 2003 (the "Notes") (incorporated by reference to Exhibit
                    4.2 of the Company's Form 10-Q for the quarter ended June
                    30, 1998, filed August 14, 1998

        10.23       Purchase Agreement, dated June 23, 1998, between the Company
                    and Prudential Securities Incorporated and Bear, Stearns &
                    Co. Inc. relating to the Notes (incorporated by reference to
                    Exhibit 4.1 of the Company's Form 10-Q for the quarter ended
                    June 30, 1998 filed August 14, 1998).
</TABLE>


                                       18
<PAGE>

<TABLE>
<CAPTION>
    EXHIBIT NO.                         DESCRIPTION
    -----------                         -----------
<S>                 <C>
        10.24       Indenture, dated as of June 26, 1998, between the Company
                    and American Stock Transfer & Trust Company, as Trustee,
                    relating to the Notes (incorporated by reference to Exhibit
                    4.2 of the Company's Form 10-Q for the quarter ended June
                    30, 1998, filed August 14, 1998).

        10.25       Registration Rights Agreement dated June 26, 1998 between
                    the Company and Prudential Securities Incorporated and Bear,
                    Stearns & Co. Inc. relating to the shares of Common Stock
                    issuable upon conversion of the Notes (incorporated by
                    reference to Exhibit 4.4 of the Company's Form 10-Q for the
                    quarter ended June 30, 1998 filed August 14, 1998).

        10.26       Underlease dated September 16, 1998 between Lowe Azure
                    Limited, NBase Europe Gmbh and the Company relating to
                    property at Unit 16, Campbell Court, Campbell Road, Bramley
                    Basingstoke Hampshire, England (incorporated by reference to
                    Exhibit 10.37 of the Company's Form 10-K for the year ended
                    December 31, 1998 filed March 31, 1999).

        10.27       Standard Industrial/Commercial Single-Tenant Lease - Net
                    dated December 1, 1998 by and between Radar Investments,
                    Inc. and Registrant relating to the premises located at 8943
                    Fullbright Avenue, Chatsworth, California (incorporated by
                    reference to Exhibit 10.38 of the Company's Form 10-K for
                    the year ended December 31, 1998 filed March 31, 1999).

        10.28       Stock Purchase Agreement Dated February 21, 2000 relating to
                    the sale and purchase of up to one hundred percent (100%) of
                    the ordinary shares in the capital of Fiber Optic
                    Communications, Inc. ("FOCI") and the sale and purchase of
                    two million four hundred thousand of ordinary shares in the
                    capital of MRV Communications, Inc. (incorporated by
                    reference to Exhibit 2.1(a) of the Company's Form 8-K filed
                    with the SEC on May 9, 2000).

        10.29       Stock Option Agreement dated July 11, 2000 between William
                    R. Spivey and the Registrant (incorporated by reference to
                    Exhibit 10.4 filed with the Luminent, Inc. Registrant
                    Statement (file no. 333-42238) on Form S-1 on July 26,
                    2000).

        10.30       Stock Option Agreement dated July 12, 2000 between Eric
                    Blachno and the Registrant (incorporated by reference to
                    Exhibit 10.7 filed with the Luminent, Inc. Registration
                    Statement (file no. 333-42238) on Form S-1 on October 5,
                    2000).

        10.31       Escrow Agreement dated as of 21st day of February, 2000, by
                    and among the Registrant, the Selling Shareholders of FOCI
                    and the law firm of Baker & McKenzie, Taipei Office
                    (incorporated by reference to Exhibit 2.1(b) of the Form 8-K
                    of the Registrant filed with the SEC on May 9, 2000).

        10.32       Addendum to Stock Purchase Agreement dated as of April 14,
                    2000 by and among FOCI, the Registrant and the selling
                    shareholders of FOCI (incorporated by reference to Exhibit
                    2.1(c) of the Form 8-K of the Registrant filed with the SEC
                    on May 9, 2000).

        10.33       Addendum to Escrow Agreement dated as of April 14, 2000 by
                    and among FOCI, Registrant and the selling shareholders of
                    FOCI (incorporated by reference to Exhibit 2.1(d) of the
                    Form 8-K of the Registrant filed with the SEC on May 9,
                    2000).
</TABLE>


                                       19

<PAGE>

<TABLE>
<CAPTION>
    EXHIBIT NO.                         DESCRIPTION
    -----------                         -----------
<S>                 <C>
        10.34       Addendum No. 2 to Escrow Agreement dated as of June 26, 2000
                    by and among FOCI, the Registrant and the selling
                    shareholders of FOCI (incorporated by reference to Exhibit
                    2.1(d) of the Form 8-K/A of the Registrant filed with the
                    SEC on July 7, 2000).

        10.35       Addendum No. 2 to Stock Purchase Agreement dated as of June
                    26, 2000 by and among FOCI, the Registrant and the selling
                    shareholders of FOCI (incorporated by reference to Exhibit
                    2.1(e) of the Form 8-K/A of the Registrant filed with the
                    SEC on July 7, 2000).

        10.36       Memorandum of Understanding dated as of June 26, 2000
                    between the Registrant and the remaining shareholders of
                    FOCI (incorporated by reference to Exhibit 2.1(f) of the
                    Form 8-K/A of the Registrant filed with the SEC on July 7,
                    2000).

        10.37       Stock Purchase Agreement by and between the Registrant and
                    the shareholders of Optronics International Corp. ("OIC")
                    dated April 23, 2000 (incorporated by reference to Exhibit
                    10.19 filed with the Luminent, Inc. Registration Statement
                    (file no. 333-42238) on Form S-1 on July 26, 2000).

        10.38       Escrow Agreement, dated as of the 23rd day of April 2000, by
                    and among the Registrant, the selling shareholders of OIC
                    and the law firm of Baker & McKenzie, Taipei Office
                    (incorporated by reference to Exhibit 10.20 filed with the
                    Luminent, Inc. Registration Statement (file no. 333-42238)
                    on Form S-1 on July 26, 2000).

        10.39       Stock Purchase Agreement by and between the Registrant and
                    the shareholders of Quantum Optech Inc. ("QOI") dated April
                    26, 2000 (incorporated by reference to Exhibit 10.21 filed
                    with the Luminent, Inc. Registration Statement (file no.
                    333-42238) on Form S-1 on July 26, 2000).

        10.40       Escrow and Stock Pledge Agreement dated as of April 26, 2000
                    by and between the Registrant and certain shareholders of
                    QOI (incorporated by reference to Exhibit 10.22 filed with
                    the Luminent, Inc. Registration Statement (file no.
                    333-42238) on Form S-1 on July 26, 2000).

        10.41       Addendum to Stock Purchase Agreement made as of June 16th,
                    2000 by and among the Registrant, QOI and shareholders of
                    QOI (incorporated by reference to Exhibit 10.23 filed with
                    the Luminent, Inc. Registration Statement (file no.
                    333-42238) on Form S-1 on July 26, 2000).

        10.42       Addendum to Escrow and Stock Pledge Agreement dated as of
                    June 16, 2000 by and between the Registrant and certain
                    shareholders of QOI (incorporated by reference to Exhibit
                    10.24 filed with the Luminent, Inc. Registration Statement
                    (file no. 333-42238) on Form S-1 on July 26, 2000).

        10.43       2000 MRV Communications, Inc. Stock Option plan for
                    Employees of Optronics International Corp. (incorporated by
                    reference to Exhibit 4.1 of the Registrant's Registration
                    Statement on Form S-8 filed with the SEC on October 13, 2000
                    (file no. 333-47898)).

        10.44       Form of Stock Option Agreement for the 2000 MRV
                    Communications, Inc. Stock Option Plan for Employees of
                    Optronics International Corp. (incorporated by reference to
                    Exhibit 4.2 of the Registrant's Registration Statement on
                    Form S-8 filed with the SEC on October 13, 2000 (file no.
                    333-47898)).
</TABLE>


                                       20
<PAGE>

<TABLE>
<CAPTION>
    EXHIBIT NO.                         DESCRIPTION
    -----------                         -----------
<S>                 <C>
        10.45       2000 MRV Communications, Inc. Stock Option Plan for
                    Employees of AstroTerra Corporation (incorporated by
                    reference to Exhibit 4.1 of the Registrant's Registration
                    Statement on Form S-8 filed with the SEC on October 13, 2000
                    (file no. 333-47900)).

        10.46       Form of Stock Option Agreement for the 2000 MRV
                    Communications, Inc. Stock Option Plan for Employees of
                    AstroTerra Corporation (incorporated by reference to Exhibit
                    4.2 of the Registrant's Registration Statement on Form S-8
                    filed with the SEC on October 13, 2000 (file no.
                    333-47900)).

        10.47       1997 Incentive and Nonstatutory Stock Option Plan, as
                    amended (incorporated by reference to Exhibit A to the
                    Registrant's Definitive Proxy Statement filed with the SEC
                    on November 2, 1999)

        10.48       Form of Stock Option Agreement under the 1997 Incentive and
                    Nonstatutory Stock Option Plan (incorporated by reference to
                    Exhibit 4.2 to the Registrant's Registration Statement on
                    Form S-8 filed with the SEC on September 24, 1999 (file no.
                    333-87735)).

        10.49       Underwriting Agreement dated as of November 9, 2000 by and
                    between the Registrant, the Registrant and Credit Suisse
                    First Boston Corporation, acting on behalf of themselves and
                    as the Representatives of the several Underwriters
                    (incorporated by reference to Exhibit 10.25 of the Form 10-K
                    for the year ended December 31, 2000 of Luminent, Inc. filed
                    with the SEC on April 2, 2001).

        10.50       Master Separation and Distribution Agreement dated as of
                    July 25, 2000 between the Registrant and Luminent, Inc.
                    (incorporated by reference to Exhibit 2.1 filed with the
                    Luminent, Inc. Registration Statement (file no. 333-42238)
                    on Form S-1 on July 26, 2000).

        10.51       Amendment to Master Separation and Distribution Agreement
                    dated as of September 8, 2000, between the Registrant, and
                    Luminent, Inc. (incorporated by reference to Exhibit 10.27
                    of the Form 10-K for the year ended December 31, 2000 of
                    Luminent, Inc. filed with the SEC on April 2, 2001).

        10.52       General Assignment and Assumption Agreement dated as of
                    September 8, 2000 between the Registrant and Luminent, Inc.
                    (incorporated by reference to Exhibit 10.28 of the Form 10-K
                    for the year ended December 31, 2000 of Luminent, Inc. filed
                    with the SEC on April 2, 2001).

        10.53       Master Technology Ownership and License Agreement dated as
                    of September 8, 2000 between the Registrant, and Luminent,
                    Inc. (incorporated by reference to Exhibit 10.29 of the Form
                    10-K for the year ended December 31, 2000 of Luminent, Inc.
                    filed with the SEC on April 2, 2001).

        10.54       Employee Matters Agreement dated as of September 8, 2000
                    between the Registrant, and Luminent, Inc. (incorporated by
                    reference to Exhibit 10.30 of the Form 10-K for the year
                    ended December 31, 2000 of Luminent, Inc. filed with the SEC
                    on April 2, 2001).

        10.55       Real Estate Matters Agreement dated as of September 8, 2000
                    between the Registrant, and Luminent, Inc. incorporated by
                    reference to Exhibit 10.31 of the Form 10-K for the year
                    ended December 31, 2000 of Luminent, Inc. filed with the SEC
                    on April 2, 2001).
</TABLE>


                                       21


<PAGE>

<TABLE>
<CAPTION>
    EXHIBIT NO.                         DESCRIPTION
    -----------                         -----------
<S>                 <C>
        10.56       Master Transitional Services Agreement dated as of September
                    8, 2000 between the Registrant, and Luminent, Inc.
                    (incorporated by reference to Exhibit 10.32 of the Form 10-K
                    for the year ended December 31, 2000 of Luminent, Inc. filed
                    with the SEC on April 2, 2001).

        10.57       Master Trademark Ownership and License Agreement dated as of
                    September 8, 2000 between the Registrant, and Luminent, Inc.
                    (incorporated by reference to Exhibit 10.33 of the Form 10-K
                    for the year ended December 31, 2000 of Luminent, Inc. filed
                    with the SEC on April 2, 2001).

        10.58       Master Patent Ownership and License Agreement dated as of
                    September 8, 2000 between the Registrant, and Luminent, Inc.
                    incorporated by reference to Exhibit 10.34 of the Form 10-K
                    for the year ended December 31, 2000 of Luminent, Inc. filed
                    with the SEC on April 2, 2001).

        10.59       Indemnification and Insurance Matters Agreement dated as of
                    September 8, 2000 between the Registrant, and Luminent, Inc.
                    (incorporated by reference to Exhibit 10.35 of the Form 10-K
                    for the year ended December 31, 2000 of Luminent, Inc. filed
                    with the SEC on April 2, 2001).

        10.60       Master Confidential Disclosure Agreement dated as of
                    September 8, 2000 between the Registrant, and Luminent, Inc.
                    (incorporated by reference to Exhibit 10.36 of the Form 10-K
                    for the year ended December 31, 2000 of Luminent, Inc. filed
                    with the SEC on April 2, 2001).

        10.61       Tax Sharing Agreement dated as of September 8, 2000 between
                    the Registrant, and Luminent, Inc. (incorporated by reference
                    to Exhibit 10.37 of the Form 10-K for the year ended
                    December 31, 2000 of Luminent, Inc. filed with the SEC on
                    April 2, 2001).

        21          Subsidiaries of the Registrant.

        23.1        Consent of Arthur Andersen LLP to incorporation of Report on
                    Financial Statements into Company's Registration Statements

        25          Power of Attorney (contained on Signature Page to Form 10-K
                    for the year ended December 31, 2000 filed with the SEC on
                    April 17, 2001).
</TABLE>

(b)     Reports on Form 8-K.

        Two reports on Form 8-K were filed during the last quarter of the period
        covered by this Report, as follows:

        (i) A report on Form 8-K/A dated September 29, 2000 was filed on October
        5, 2000 supplementing and completing the Form 8-K dated July 26, 2000
        filed on July 27, 2000, as amended by Form 8-K/A dated September 22,
        2000 filed on September 22 reporting the acquisition of AstroTerra. In
        that Form 8-K/A, the following financial statements and pro forma
        financial information were filed under Item 7:

               (a) Financial Statements of AstroTerra:

               Report of Independent Public Accountants




                                       22

<PAGE>

               Balance Sheets at December 31, 1998 and 1999 (audited) and June
               30, 2000 (unaudited)

               Statements of Operations for the years ended December 31, 1997,
               1998 and 1999 (audited) and the six months ended June 30, 1999
               and 2000 (unaudited)

               Statements of Stockholders' Equity for the years ended December
               31, 1997, 1998 and 1999 (audited) and the six months ended June
               30, 1999 and 2000 (unaudited)

               Statements of Cash Flows for the years ended December 31, 1997,
               1998 and 1999 (audited) and the six months ended June 30, 1999
               and 2000 (unaudited)

               Notes to Financial Statements

               (b) Pro Forma Financial Information

               Unaudited Pro Forma Condensed Consolidated Financial Information

               Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
               June 30, 2000

               Unaudited Pro Forma Condensed Consolidated Statement of
               Operations for the Six Month Period Ended June 30, 2000

               Unaudited Pro Forma Condensed Consolidated Statement of
               Operations for the Year Ended December 31, 1999

               Notes to Unaudited Pro Forma Condensed Consolidated Financial
               Information


        (ii). A report on Form 8-K dated October 16, 2000 was filed on October
        16, 2000 reporting matters under Item 5


                                       23
<PAGE>

                                           SIGNATURES

        In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act"), the Registrant caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chatsworth,
State of California, on December 27, 2001.

                                      MRV COMMUNICATIONS, INC.

                                      By:  /s/ NOAM LOTAN
                                          --------------------------------------
                                           Noam Lotan, President and
                                           Chief Executive Officer


        Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
                           Names                                 Title                              Date
                           -----                                 -----                              ----
<S>                                           <C>                                                <C>
                  /s/ NOAM LOTAN              President, Chief Executive Officer (Principal
         --------------------------------     Executive Officer), and a Director                 December 27, 2001
                    Noam Lotan


               /s/  SHLOMO MARGALIT           Chairman of the Board, Chief Technical
         --------------------------------     Officer, Secretary, and a Director                 December 27, 2001
                 Shlomo Margalit


                /s/ SHAY GONEN                Interim Chief Financial Officer
         --------------------------------     (Principal Financial and Accounting Officer)       December 27, 2001
                   Shay Gonen

               /s/ IGAL SHIDLOVSKY*
         --------------------------------     Director                                           December 27, 2001
                 Igal Shidlovsky

               /s/ GUENTER JAENSCH*
         --------------------------------     Director                                           December 27, 2001
                 Guenter Jaensch

                 /s/ DANIEL TSUI*
         --------------------------------     Director                                           December 27, 2001
                   Daniel Tsui

                /s/ BARUCH FISCHER*
         --------------------------------     Director                                           December 27, 2001
                  Baruch Fischer

*By              /s/ NOAM LOTAR
         --------------------------------     Attorney-In-Fact
                    Noam Lotar
</TABLE>


                                       24

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To MRV Communications, Inc.:

     We have audited the accompanying consolidated balance sheets of MRV
Communications, Inc. (a Delaware corporation) and subsidiaries as of December
31, 1999 and 2000, and the related consolidated statements of operations,
stockholders' equity and comprehensive loss and cash flows for each of the three
years in the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MRV
Communications, Inc. and subsidiaries as of December 31, 1999 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States.

                                                /s/ ARTHUR ANDERSEN LLP
                                          --------------------------------------
                                                   Arthur Andersen LLP

Los Angeles, California
February 19, 2001
(except for matters discussed in Note 18
as to which the date is October 4, 2001)

                                      F-1
<PAGE>

                            MRV COMMUNICATIONS, INC.

                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                                            DECEMBER 31,
                                                                                       ----------------------
                                                                                         1999         2000
                                                                                       --------    ----------
<S>                                                                                    <C>         <C>
ASSETS
Current assets:
  Cash and cash equivalents..........................................................  $ 34,330    $  210,080
  Restricted cash....................................................................        --        56,181
  Short-term investments.............................................................    10,141        17,766
  Accounts receivable, net of allowance of $8,451 in 1999 and $9,480 in 2000.........    60,637        62,713
  Inventories........................................................................    35,392        77,005
  Refundable income taxes............................................................     3,216            --
  Deferred income taxes..............................................................     6,907        31,227
  Other current assets...............................................................     6,336        22,750
                                                                                       --------    ----------
        Total current assets.........................................................   156,959       477,722
Property and equipment, at cost:
  Land...............................................................................        --         3,559
  Building...........................................................................     3,814        19,563
  Machinery and equipment............................................................    12,598        57,369
  Furniture and fixtures.............................................................     4,233        12,824
  Computer hardware and software.....................................................    12,913        10,823
  Leasehold improvements.............................................................     3,053         7,221
  Construction in progress...........................................................        --         3,815
                                                                                       --------    ----------
                                                                                         36,611       115,174
  Less -- Accumulated depreciation and amortization..................................   (17,011)      (42,905)
                                                                                       --------    ----------
                                                                                         19,600        72,269
Other assets:
  Investments........................................................................   101,936        31,734
  Deferred income taxes..............................................................     5,324         6,209
  Goodwill and other intangibles, net................................................    27,214       504,027
  Other..............................................................................     3,500         5,660
                                                                                       --------    ----------
                                                                                        137,974       547,630
                                                                                       --------    ----------
                                                                                       $314,533    $1,097,621
                                                                                       ========    ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of capital lease obligations.......................................  $    198    $      163
  Current portion of long-term debt..................................................        --         2,774
  Short-term obligations.............................................................        --         9,104
  Accounts payable...................................................................    33,455        56,088
  Accrued liabilities................................................................    15,403        34,894
  Income taxes payable...............................................................        --         6,477
  Deferred revenue...................................................................     1,478         1,470
                                                                                       --------    ----------
        Total current liabilities....................................................    50,534       110,970
Long-term liabilities:
  Convertible subordinated notes.....................................................    90,000        89,646
  Capital lease obligations, net of current portion..................................     1,481           621
  Long-term debt, net of current portion.............................................        --        60,257
  Other long-term liabilities........................................................     2,928         3,980
                                                                                       --------    ----------
        Total long-term liabilities..................................................    94,409       154,504
Commitments and contingencies
Minority interest....................................................................     2,775        50,592
Stockholders' equity:
  Preferred stock, $0.01 par value:
    Authorized -- 1,000 shares; no shares issued or outstanding......................        --            --
  Common stock, $0.0017 par value:
    Authorized -- 160,000 shares
    Issued -- 56,282 shares in 1999 and 73,327 in 2000
    Outstanding -- 56,234 shares in 1999 and 73,279 in 2000..........................        96           126
  Additional paid-in capital.........................................................   191,468     1,060,650
  Accumulated deficit................................................................   (18,377)     (171,330)
  Deferred stock compensation, net...................................................        --      (100,862)
  Treasury stock, 48 shares at cost in 1999 and 2000.................................      (133)         (133)
  Accumulated other comprehensive loss...............................................    (6,239)       (6,896)
                                                                                       --------    ----------
        Total stockholders' equity...................................................   166,815       781,555
                                                                                       --------    ----------
                                                                                       $314,533    $1,097,621
                                                                                       ========    ==========
</Table>

The accompanying notes are an integral part of these consolidated balance
sheets.

                                      F-2
<PAGE>

                            MRV COMMUNICATIONS, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<Table>
<Caption>
                                                            FOR THE YEARS ENDED DECEMBER 31,
                                                            ---------------------------------
                                                              1998        1999        2000
                                                            --------    --------    ---------
<S>                                                         <C>         <C>         <C>
Revenues, net.............................................  $264,075    $288,524    $ 319,394
Costs and expenses:
  Cost of goods sold(1)...................................   165,385     197,442      203,371
  Research and development(1).............................    25,817      35,319       74,078
  Selling, general and administrative(1)..................    53,852      67,859      124,700
  Amortization of goodwill and other intangibles..........     2,901       3,898       66,814
  Purchased technology in progress........................    20,633          --           --
  Restructuring costs.....................................    15,671          --           --
                                                            --------    --------    ---------
                                                             284,259     304,518      468,963
                                                            --------    --------    ---------
     Operating loss.......................................   (20,184)    (15,994)    (149,569)
Other income (expense):
  Interest expense........................................    (2,480)     (4,500)     (10,129)
  Minority interest.......................................    (1,345)        610          796
  Interest income and other...............................     6,819       4,822          551
                                                            --------    --------    ---------
                                                               2,994         932       (8,782)
                                                            --------    --------    ---------
     Loss before provision (benefit) for income taxes and
       extraordinary item.................................   (17,190)    (15,062)    (158,351)
Provision (benefit) for income taxes......................     5,707      (2,153)      (5,398)
                                                            --------    --------    ---------
     Loss before extraordinary item.......................   (22,897)    (12,909)    (152,953)
Extraordinary item:
  Gain on repurchase of convertible notes, net of tax of
     $1,639...............................................     2,791          --           --
                                                            --------    --------    ---------
     Net loss.............................................  $(20,106)   $(12,909)   $(152,953)
                                                            ========    ========    =========
Loss per share information:
Basic and diluted loss per share..........................  $  (0.38)   $  (0.24)   $   (2.33)
Basic and diluted weighted average shares outstanding.....    53,064      53,920       65,669
                                                            ========    ========    =========
</Table>

-------------------------
(1) Includes amounts relating to deferred stock compensation of $8.3 million,
    $21.6 million and $30.0 million presented in "cost of goods sold", "research
    and development" and "selling, general and administrative", respectively,
    for the year ended December 31, 2000.

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

                                      F-3
<PAGE>

                            MRV COMMUNICATIONS, INC.

     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                                                         ACCUMULATED
                                  COMMON STOCK     ADDITIONAL                    RETAINED                   OTHER
                                 ---------------    PAID-IN     DEFERRED STOCK   EARNINGS    TREASURY   COMPREHENSIVE
                                 SHARES   AMOUNT    CAPITAL      COMPENSATION    (DEFICIT)    STOCK         LOSS          TOTAL
                                 ------   ------   ----------   --------------   ---------   --------   -------------   ---------
<S>                              <C>      <C>      <C>          <C>              <C>         <C>        <C>             <C>
BALANCE, DECEMBER 31, 1997.....  52,720    $ 90    $  175,872     $      --      $  14,635    $  --        $  (628)     $ 189,969
  Exercise of stock warrants
    and options................     606       1         1,509            --             --       --             --          1,510
  Issuance of warrants in
    connection with the
    acquisition of Xyplex......      --      --         3,272            --             --       --             --          3,272
  Purchase of treasury stock...     (48)     --            --            --             --     (133)            --           (133)
  Comprehensive loss:
    Translation adjustments....      --      --            --            --             --       --            (83)           (83)
    Net loss...................      --      --            --            --        (20,106)      --             --        (20,106)
                                                                                                                        ---------
  Comprehensive loss...........      --      --            --            --             --       --             --        (20,189)
                                 ------    ----    ----------     ---------      ---------    -----        -------      ---------
BALANCE, DECEMBER 31, 1998.....  53,278      91       180,653            --         (5,471)    (133)          (711)       174,429
  Exercise of stock warrants
    and options................   2,156       4         2,816            --             --       --             --          2,820
  Exercise of stock warrants by
    Intel Corporation..........     800       1         7,999            --             --       --             --          8,000
  Other........................      --      --            --            --              3       --             --              3
  Comprehensive loss:
    Translation adjustments....      --      --            --            --             --       --         (5,528)        (5,528)
    Net loss...................      --      --            --            --        (12,909)      --             --        (12,909)
                                                                                                                        ---------
  Comprehensive loss...........      --      --            --            --             --       --             --        (18,437)
                                 ------    ----    ----------     ---------      ---------    -----        -------      ---------
BALANCE, DECEMBER 31, 1999.....  56,234      96       191,468            --        (18,377)    (133)        (6,239)       166,815
  Exercise of stock options....   2,896       5         7,757            --             --       --             --          7,762
  Tax benefit from exercise of
    stock options..............      --      --        11,417            --             --       --             --         11,417
  Issuance of common stock in
    connection with
    acquisitions...............  14,123      25       639,172            --             --       --             --        639,197
  Issuance of common stock in
    connection with conversion
    of convertible subordinated
    notes......................      26      --           354            --             --       --             --            354
  Effect of subsidiary equity
    transactions...............      --      --        49,679            --             --       --             --         49,679
  Deferred stock
    compensation...............      --      --       160,803      (160,803)            --       --             --             --
  Amortization of deferred
    stock compensation.........      --      --            --        59,941             --       --             --         59,941
  Comprehensive loss:
    Net loss...................      --      --            --            --       (152,953)      --             --       (152,953)
    Translation adjustments....      --      --            --            --             --       --           (657)          (657)
                                                                                                                        ---------
  Comprehensive loss...........      --      --            --            --             --       --             --       (153,610)
                                 ------    ----    ----------     ---------      ---------    -----        -------      ---------
BALANCE, DECEMBER 31, 2000.....  73,279    $126    $1,060,650     $(100,862)     $(171,330)   $(133)       $(6,896)     $ 781,555
                                 ======    ====    ==========     =========      =========    =====        =======      =========
</Table>

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

                                      F-4
<PAGE>

                            MRV COMMUNICATIONS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                               FOR THE THREE YEARS ENDED DECEMBER 31,
                                                              ----------------------------------------
                                                                 1998           1999          2000
                                                              -----------    ----------    -----------
<S>                                                           <C>            <C>           <C>
Cash Flows From Operating Activities:
  Net loss..................................................   $ (20,106)     $(12,909)     $(152,953)
  Adjustments to reconcile net loss to net cash provided by
    (used in) operating activities:
      Depreciation and amortization.........................       7,902        12,501         77,871
      Amortization of deferred stock compensation expense...          --            --         59,941
      Allowance for doubtful accounts.......................       2,591         1,416          3,833
      Deferred income taxes.................................       1,408        (1,302)       (25,205)
      Realized gain on investment...........................      (2,535)           --            (50)
      Purchased technology in progress......................      20,633            --             --
      Extraordinary gain on repurchase of convertible
         subordinated notes.................................      (2,791)           --             --
      Loss on disposition of property and equipment.........          --            --             16
      Tax benefit from stock option exercises...............          --            --         11,417
      Other.................................................         324            --             --
      Minority interests' share of income (loss)............       1,345          (610)          (796)
  Changes in operating assets and liabilities, net of
    effects from acquisitions:
    Accounts receivable.....................................      12,263        (7,457)         4,949
    Inventories.............................................       3,453        12,075        (28,869)
    Refundable income taxes.................................          --            --          3,216
    Other assets............................................       2,008          (519)       (12,020)
    Accounts payable........................................     (19,505)        3,698         28,939
    Accrued liabilities.....................................      (7,438)        1,715          4,890
    Income taxes payable....................................      (7,006)       (3,661)        (5,154)
    Deferred revenue........................................         508        (2,920)           175
                                                               ---------      --------      ---------
         Net cash provided by (used in) operating
           activities.......................................      (6,946)        2,027        (29,800)
Cash Flows From Investing Activities:
  Purchases of property and equipment.......................      (6,337)       (8,053)       (23,977)
  Proceeds from sale of property and equipment..............          --            --          1,520
  Purchases of investments..................................    (206,846)      (19,242)       (21,566)
  Proceeds from maturity of investments.....................     173,714        38,293         97,704
  Cash used in acquisitions, net of cash received...........     (44,695)       (4,773)       (44,517)
                                                               ---------      --------      ---------
         Net cash provided by (used in) investing
           activities.......................................     (84,164)        6,225          9,164
Cash Flows From Financing Activities:
  Net proceeds from subsidiary equity transaction...........          --            --        132,290
  Net proceeds from issuance of common stock................       1,510        10,820          7,762
  Proceeds from issuance of convertible debentures, net.....      96,423            --             --
  Borrowings on short-term obligations......................          --            --         35,887
  Payments on short-term obligations........................          --            --        (35,949)
  Principal payments on capital lease obligations...........         (62)           94           (163)
  Borrowings on long-term debt..............................          --            --         62,696
  Payments on long-term debt................................          --            --         (4,002)
  Repurchase of convertible notes...........................      (5,300)           --             --
  Purchase of treasury stock................................        (133)           --             --
                                                               ---------      --------      ---------
         Net cash provided by financing activities..........      92,438        10,914        198,521
Effect of exchange rate changes on cash and cash
  equivalents...............................................         (64)       (5,528)        (2,135)
Net increase in cash and cash equivalents...................       1,264        13,638        175,750
Cash and cash equivalents, beginning of year................      19,428        20,692         34,330
                                                               ---------      --------      ---------
Cash and cash equivalents, end of year......................   $  20,692      $ 34,330      $ 210,080
                                                               =========      ========      =========
</Table>

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

                                      F-5
<PAGE>

                            MRV COMMUNICATIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2000

1. BUSINESS AND BASIS OF PRESENTATION

     MRV Communications, Inc. (a Delaware corporation, MRV or the Company)
creates, acquires, finances and operates companies, and through them, designs,
develops, manufactures and markets products, which enable high-speed broadband
communications. MRV concentrates on companies and products devoted to optical
components and Internet infrastructure systems. Such products include fiber
optic components, switching, routing, transaction management and wireless
optical transmission systems. MRV's strategy involves creating value for its
stockholders and the other owners of its subsidiaries by helping the companies
grow and access the public and private capital markets.

     As of December 31, 2000, MRV's more significant subsidiaries, development
stage enterprises and other affiliated companies were as follows:

     Luminent, Inc, -- Luminent is a 92 percent-owned subsidiary of MRV
designing, manufacturing and selling fiber optic components that enable
communications equipment manufacturers to provide optical networking solutions
for the rapidly growing metropolitan and access segments of the communications
network. Its products are designed to meet the increasing bandwidth requirements
between long-haul telecommunication networks and end users. Luminent specializes
in singlemode fiber optic components and subsystems for high-capacity data
transmission for long-reach applications in the metropolitan and access markets.

     Optical Access, Inc. -- Optical Access is a wholly-owned subsidiary of MRV
designing, manufacturing and marketing optical wireless products that enable the
delivery of high-speed communications traffic to the portion of the
communications network commonly known as the last mile, which extends from the
end user to the service provider's central office. Management believes its
solution provides higher transmission capacity, or bandwidth, at a lower cost
compared to other commercially available last mile solutions.

     CEScomm, Inc. -- CEScomm, formerly Creative Electronic Systems SA, is a
wholly-owned subsidiary of MRV developing and providing equipment to
manufacturers of cellular network infrastructure equipment and mobile operators
and service providers for the third generation of wireless solutions for the
next generation of mobile communications systems. These new systems provide
enhanced services to those available today i.e. voice, text and data. CEScomm
specializes in products that provide the real-time conversion of radio signals
generated by Internet ready mobile devices into asynchronous transfer mode
traffic streams.

     iTouch Communications, Inc. -- iTouch is wholly-owned subsidiary of MRV
providing next-generation Internet infrastructure solutions that enable service
providers and carriers to deliver and monitor, on a real-time basis, high-speed
Internet services. iTouch's products combine transaction management with
Internet protocol (IP) routing and wide area networks (WAN), high-speed data
acquisition and management systems.

     NBase-Xyplex, Inc. -- NBas-Xyplex is a wholly-owned subsidiary of MRV
providing products and services to enhance network infrastructures for city
carriers, service providers, cable operators and campus and enterprise networks.
Its products and technologies have been utilized in metropolitan area based
fiber-based networks, enabling smart access to WAN, as well as in local area
networks (LAN), switching, building enterprise/corporate data networks.

     Charlotte's Networks, Inc. -- Charlotte is a 90 percent-owned subsidiary of
MRV developing a core router for large service providers and carriers. Its
product is capable of carrying both IP packets and time-division multiplexing
voice traffic and enables the current WAN to increase processing power and rate
of transmission. In addition, the router provides multi-services required by
telecommunication companies for efficient and flexible transmission of voice
over data networks.

                                      F-6
<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

     Zuma Networks, Inc. -- Zuma is a wholly-owned subsidiary of MRV developing
a next generation gigabit Ethernet switch router platform.

     Optical Crossing, Inc. -- Optical Crossing is a 60 percent-owned subsidiary
of MRV designing, developing and manufacturing advanced fiber optic
communication components and systems for the telecommunications industry.

     Zaffire, Inc. -- Zaffire is a 22 percent-owned, on a fully diluted basis,
affiliate of MRV focused on developing a next-generation, optical services
networking system for service providers.

     RedC Optical Networks, Inc. -- RedC is a 35 percent-owned, on a fully
diluted basis, affiliate of MRV that has developed a complete line of optical
modules used for operating, monitoring and protecting optical networks
including: optical amplifiers, add/drop modules, protection and restoration
modules and dense wave division multiplexing monitoring.

     Hyperchannel Ltd. -- Hyperchannel, which does business under its trademark
Hyporium, is a 42 percent-owned, on a fully diluted basis, affiliate of MRV and
an independent Internet market maker for the information technology industry
(IT), enabling IT vendors, distributors and resellers to trade online.

     In November 2000, Luminent, a publicly owned subsidiary, completed an
initial public offering of its common stock, selling 12.0 million shares at $12
per share and raising net proceeds of approximately $132.3 million. As of
December 31, 2000, MRV owned 92% of the outstanding capital stock of Luminent.
MRV has announced plans to distribute all of its shares of Luminent common stock
to its stockholders on the later of three months after receipt of a favorable
private letter ruling from the Internal Revenue Service or six months after the
offering, although it is not obligated to do so.

     As of December 31, 2000, MRV owned all of the outstanding capital stock of
Optical Access. On October 6, 2000, Optical Access filed a registration
statement with the Securities and Exchange Commission (SEC) for the initial
public offering of its common stock, which has not yet become effective.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

     The accompanying consolidated financial statements include the accounts of
MRV and its wholly-owned and majority owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated. MRV consolidates
the financial results of related development stage enterprises when it has
effective control, voting control or has provided the entity's working capital.
When others invest in these enterprises reducing its voting control below 50
percent, MRV discontinues consolidation and uses the equity method of accounting
for these investments.

FOREIGN CURRENCY TRANSLATION

     Transactions and balances originally denominated in U.S. dollars are
presented at their original amounts. Transactions and balances in other
currencies are converted into U.S. dollars in accordance with Statement of
Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation,"
and are included in determining net income or loss.

     For foreign operations with the local currency as the functional currency,
assets and liabilities are translated from the local currencies into U.S.
dollars at the exchange rate prevailing at the balance sheet date. Revenues,
expenses and cash flows are translated at weighted average exchange rates for
the period to approximate translation at the exchange rates prevailing at the
dates those elements are recognized in

                                      F-7
<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

the financial statements. Translation adjustments resulting from the process of
translating the local currency financial statements into U.S. dollars are
included in determining comprehensive loss.

REVENUE RECOGNITION

     MRV generally recognizes 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 probable. Products are
generally shipped "FOB shipping point" with no rights of return. Sales with
contingencies, such as rights of return, rotation rights, conditional acceptance
provisions and price protection, are rare and insignificant and are deferred
until the contingencies have been satisfied or the contingent period has lapsed.
MRV's major revenue-generating products consist of: passive and active optical
components; switches and routers; remote device management; and network
infrastructure equipment. Revenue generated through the sales of services and
systems support has been insignificant.

     MRV generally warrants our products against defects in materials and
workmanship for one year. The estimated cost of warranty obligations and sales
returns and other allowances are recognized at the time of revenue recognition
based on contract terms and prior claims experience.

CASH AND CASH EQUIVALENTS

     MRV considers all highly liquid investments with an original maturity of 90
days or less to be cash equivalents. MRV maintains cash balances and investments
in highly qualified financial institutions. At various times such amounts are in
excess of insured limits. In connection with MRV's interest rate swap agreement
and its long-term debt (see Note 9, Interest Rate Swap), $56.2 million in cash
has been restricted until the term loan and the swap expire in 2003. As of
December 31, 2000, $132.9 million of cash, cash equivalents and short-term
investments were held by MRV's publicly traded subsidiary, Luminent.

INVESTMENTS

     MRV accounts for its investments under the provisions of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."

     As of December 31, 1999 and 2000, short and long-term investments consisted
principally of U.S. Treasury notes. As defined by SFAS No. 115, MRV has
classified its investments in these debt securities as "held-for-maturity"
investments and all investments are recorded at their amortized cost basis,
which approximated their fair value at December 31, 1999 and 2000. As of
December 31, 2000, all held-for-maturity investments were short-term expiring at
various dates through 2001.

INVENTORIES

     Inventories are stated at the lower of cost or market and consist of
material, labor and overhead. Cost is determined by the first-in, first out
method.

                                      F-8
<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

     Inventories consisted of the following as of December 31, 1999 and 2000 (in
thousands):

<Table>
<Caption>
                                                               1999       2000
                                                              -------    -------
<S>                                                           <C>        <C>
Raw materials...............................................  $ 8,475    $36,278
Work-in-process.............................................    8,083     17,721
Finished goods..............................................   18,834     23,006
                                                              -------    -------
                                                              $35,392    $77,005
                                                              =======    =======
</Table>

PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related assets.
Useful lives range from three to thirty-three years. Maintenance and repairs are
charged to expense as incurred and the costs of additions and betterments that
increase the useful lives of the assets are capitalized.

GOODWILL AND OTHER INTANGIBLES

     Intangible assets represent intellectual property acquired, purchased
intangible assets and the excess acquisition cost over the fair value of
tangible and identified intangible net assets of the businesses acquired
(goodwill). Purchased intangible assets include patents, assembled work forces,
customer contracts and goodwill. Goodwill is amortized using the straight-line
method over five years. Other intangible assets are amortized using the
straight-line method over estimated useful lives ranging from 1 to 12 years.

     The components of intangible assets as of December 31, 1999 and 2000 are as
follows (in thousands):

<Table>
<Caption>
                                                               1999        2000
                                                              -------    --------
<S>                                                           <C>        <C>
Patents.....................................................  $    --    $ 64,600
Assembled work forces.......................................       --       1,790
Customer contracts..........................................       --         720
Goodwill....................................................   33,909     510,426
                                                              -------    --------
                                                               33,909     577,536
Less -- Accumulated amortization............................   (6,695)    (73,509)
                                                              -------    --------
                                                              $27,214    $504,027
                                                              =======    ========
</Table>

IMPAIRMENT OF INTANGIBLES AND OTHER LONG-LIVED ASSETS

     MRV evaluates its long-term assets, such as patents, assembled work forces,
customer contracts, goodwill and property and equipment, for impairment at the
acquired business unit level whenever events or changes in circumstances
indicate that the carrying value of an asset may be impaired. MRV considers
events or changes such as product discontinuance, plant closures, product
dispositions, a history of operating losses or other changes in circumstances
that indicate that the carrying amount may not be recoverable. The carrying
value of an asset is considered impaired when the anticipated undiscounted cash
flow from such assets is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
market value. Fair market value is determined using the anticipated cash flows
discounted at a rate based on MRV's weighted average costs of capital, which
represents the blended after-tax costs of debt and equity.

                                      F-9
<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

FAIR VALUE OF FINANCIAL INSTRUMENTS

     MRV's financial instruments, including cash and cash equivalents,
investments, accounts receivable, accounts payable, accrued liabilities and
short-term debt obligations are carried at cost, which approximates their fair
market value due to the short-term nature of those instruments. The fair value
of long-term debt obligations is estimated based on current interest rates
available to MRV for debt instruments with similar terms, degrees of risk and
remaining maturities. The carrying values of these obligations approximate their
fair values.

SOFTWARE DEVELOPMENT COSTS

     In accordance with SFAS No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed," development costs related
to software products are expensed as incurred until the technological
feasibility of the product has been established. Technological feasibility in
MRV's circumstances occurs when a working model is completed. After
technological feasibility is established, additional costs would be capitalized.

     MRV believes its process for developing software is essentially completed
concurrent with the establishment of technological feasibility, and,
accordingly, no software development costs have been capitalized to date.

ADVERTISING COSTS

     Advertising costs are charged to expense as incurred.

INCOME TAXES

     Deferred income tax assets and liabilities are computed based on the
temporary differences between the financial statement and income tax bases of
assets and liabilities using the statutory marginal income tax rate in effect
for the years in which the differences are expected to reverse. Deferred income
tax expenses or credits are based on the changes in the deferred income tax
assets or liabilities from period to period.

EARNINGS PER SHARE

     Basic earning (loss) per share is calculated by dividing net income (loss)
by the weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per share is calculated by dividing net income by the
sum of the weighted average number of common shares outstanding, plus all
additional common shares that would have been outstanding if potentially
dilutive securities or common stock equivalents had been issued. Options to
purchase 4.1 million, 4.0 million and 8.2 million shares were not included in
the computation of years 1998, 1999 and 2000 diluted earnings (loss) per share
because such options were considered anti-dilutive. Warrants to purchase 5.8
million, 3.3 million and 2.4 million shares were not included in the computation
of years 1998, 1999 and 2000 diluted earnings (loss) per share because such
options were considered anti-dilutive. Shares associated with MRV's $89.6
million outstanding convertible subordinated notes were not included in the
computation of earnings (loss) per share as they were considered anti-dilutive.

                                      F-10
<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

     The following schedule summarizes the information used to compute earnings
per share (in thousands, except per share data) for each of the three years in
the period ended December 31, 2000:

<Table>
<Caption>
                                                              1998        1999        2000
                                                            --------    --------    ---------
<S>                                                         <C>         <C>         <C>
Loss before extraordinary item............................  $(22,897)   $(12,909)   $(152,953)
Extraordinary item -- gain on repurchase of convertible
  subordinated notes, net of tax..........................     2,791          --           --
                                                            --------    --------    ---------
          Net loss........................................  $(20,106)   $(12,909)   $(152,953)
                                                            ========    ========    =========
Weighted average number of shares used to compute basic
  and diluted loss per share..............................    53,064      53,920       65,669
                                                            ========    ========    =========
Basic and diluted loss per share before extraordinary
  item....................................................     (0.43)      (0.24)       (2.33)
Extraordinary gain per basic and diluted share............      0.05          --           --
                                                            --------    --------    ---------
Basic and diluted loss per share..........................     (0.38)      (0.24)       (2.33)
                                                            ========    ========    =========
</Table>

STOCK-BASED COMPENSATION

     MRV accounts for its employee stock plan under the intrinsic value method
prescribed by Accounting Principles Board Opinion (APB) No. 25, "Accounting for
Stock Issued to Employees," and related interpretations, and has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."

     MRV accounts for option and warrant grants to non-employees using the
guidance prescribed by SFAS No. 123, Financial Accounting Standards Board (FASB)
Interpretation No. (FIN) 44, "Accounting for Certain Transactions Involving
Stock Compensation (an interpretation of APB Opinion No. 25)," and Emerging
Issue Task Force (EITF) No. 96-18, "Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or In Conjunction with Selling,
Goods, or Services," whereby the fair value of such option and warrant grants
are measured using the fair value at the earlier of the date at which the
non-employee's performance is completed or a performance commitment is reached.

     Deferred stock compensation expense is being amortized using the graded
vesting method. Using this method, approximately 57%, 26%, 13% and 4%,
respectively, of each option's compensation expense is amortized in each of the
four years following the date of grant. Deferred stock compensation generated
during 2000 was $160.8 million of which $106.6 million was generated through
acquisitions (see Note 3) and $54.2 million was generated through stock options
granted to Luminent's Chief Executive Officer and its Chief Financial Officer
(see Note 12). Total deferred stock compensation expense for the year ended
December 31, 2000 was $59.9 million. There was no deferred stock compensation
expense incurred for the year ended December 31, 1999.

TRANSACTIONS WITH STOCK OF A SUBSIDIARY

     At the time a subsidiary sells its stock to unrelated parties at a price in
excess of its book value, the book value of MRV's investment in that subsidiary
increases. If at that time, the subsidiary is not a newly-formed, non-operating
entity, nor a research and development, start-up or development stage company,
nor does MRV contemplate subsequent capital transactions or intend to spin-off
the subsidiary to stockholders, MRV records the increase in its investment as a
gain in Other Income, net in its Consolidated Statements of Operations.
Otherwise, the increase in its investment is considered as additional paid-in
capital, which is included in Effect of Subsidiary Equity Transactions in MRV's
Consolidated Statements of Stockholders' Equity.

                                      F-11
<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

     On November 9, 2000, Luminent, a wholly-owned subsidiary of MRV, issued
12.0 million shares of its common stock for $12 per share, or $144.0 million, to
complete its initial public offering. As part of MRV's plan to spin-off Luminent
to MRV stockholders, the purchase price in excess of its book value, or $49.7
million has been included in Effect of Subsidiary Equity Transactions in MRV's
Consolidated Statements of Stockholders' Equity for the year ended December 31,
2000.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1998 and June 1999, the FASB issued SFAS No. 133, "Accounting for
Derivative Investments and Hedging Activities," and SFAS No. 137, which delayed
the effective date of SFAS No. 133. In June 2000, the FASB issued SFAS No. 138,
which provides additional guidance for the application of SFAS No. 133 for
certain transactions. MRV will adopt the statement in January 2001 and does not
expect the adoption of this statement to have a material impact on its financial
position or results of operations.

     In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements," and related interpretations. SAB
101 summarizes certain of the SEC's views in applying accounting principles
generally accepted in the Unites States to revenue recognition in financial
statements. MRV has applied the provisions of SAB 101, which did not have a
material impact on its financial position or results of operations.

     In March 2000, the FASB issued FIN 44, which clarifies the application of
APB No. 25 for certain issues, including the definition of an employee, the
treatment of the acceleration of stock options and the accounting treatment for
options assumed in business combinations. FIN 44 became effective on July 1,
2000, but is applicable for certain transactions dating back to December 1998.
The adoption of FIN 44 did not have a significant impact on MRV's financial
position or results of operations.

USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

                                      F-12
<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

RECLASSIFICATIONS

     Certain prior year amounts have been reclassified to conform with the
current year presentation.

3. BUSINESS ACQUISITIONS

     The following table presents information about acquisitions by MRV in each
of the three years in the period ended December 31, 2000. All of these
acquisitions were accounted for under the purchase method of accounting, and the
results of operations of each business have been included in the accompanying
consolidated statements of operations from the date of acquisition.

<Table>
<Caption>
                                    DATE OF           TOTAL         FORM OF CONSIDERATION AND
       ACQUIRED COMPANY           ACQUISITION     CONSIDERATION     OTHER NOTES TO ACQUISITION
       ----------------         ----------------  --------------  ------------------------------
<S>                             <C>               <C>             <C>
YEAR ENDED DECEMBER 31, 2000

Fiber Optic Communications,     April 24, 2000    $309.7 million  $48.6 million in cash and 5.4
  Inc.                                                            million shares of common stock
                                                                  and options issued;
                                                                  approximately 97% of capital
                                                                  stock assumed; goodwill
                                                                  recorded of $261.5 million;
                                                                  deferred stock compensation
                                                                  recorded of $14.1 million.
Jolt Limited                    May 1, 2000       $57.7 million   1.9 million shares of common
                                                                  stock and options issued; 100%
                                                                  of capital stock assumed;
                                                                  goodwill and intangibles
                                                                  recorded of $33.7 million;
                                                                  deferred stock compensation
                                                                  recorded of $25.0 million.
Quantum Optech Inc.             July 12, 2000     $36.1 million   1.2 million shares of common
                                                                  stock and options issued; 100%
                                                                  of capital stock assumed;
                                                                  goodwill recorded of $27.8
                                                                  million; deferred stock
                                                                  compensation recorded of $2.7
                                                                  million.
AstroTerra Corporation          July 12, 2000     $160.3 million  2.4 million shares of common
                                                                  stock and options issued; 100%
                                                                  of capital stock assumed;
                                                                  goodwill and intangibles
                                                                  recorded of $108.4 million;
                                                                  deferred stock compensation
                                                                  recorded of $50.0 million.
Optronics International Corp.   July 21, 2000     $123.9 million  4.2 million shares of common
                                                                  stock and options issued;
                                                                  approximately 99% of capital
                                                                  stock assumed; goodwill
                                                                  recorded of $99.4 million;
                                                                  deferred stock compensation
                                                                  recorded of $13.4 million.
</Table>

                                      F-13
<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

<Table>
<Caption>
                                    DATE OF           TOTAL         FORM OF CONSIDERATION AND
       ACQUIRED COMPANY           ACQUISITION     CONSIDERATION     OTHER NOTES TO ACQUISITION
       ----------------         ----------------  --------------  ------------------------------
<S>                             <C>               <C>             <C>
Other                           Various           $16.5 million   507,000 shares of common stock
                                                                  issued; 100% of capital stock
                                                                  assumed; goodwill recorded of
                                                                  $14.9 million; deferred stock
                                                                  compensation recorded of $1.4
                                                                  million.
YEAR ENDED DECEMBER 31, 1998

Whittaker Xyplex, Inc.(1)       January 30, 1998  $38.3 million   $35.0 million in cash and
                                                                  843,000 options to purchase
                                                                  common stock issued(3). 100%
                                                                  of capital stock assumed;
                                                                  $20.6 million in-process
                                                                  technology expensed(2);
                                                                  goodwill recorded of $10.3
                                                                  million.
</Table>

-------------------------
(1) Whittaker Xyplex, Inc.'s name was subsequently changed to Nbase-Xyplex and
    most recently, to iTouch Communications.

(2) Technology in-process was valued according to the "milestone" or percentage
    complete method.

(3) In connection with the acquisition of Whittaker Xyplex, MRV issued
    three-year warrants, expiring in January 2001, to purchase 843,000 shares of
    common stock at an exercise price of $35.00 per share. Using the fair value
    method, these warrants were valued at $3.3 million.

     On April 24, 2000, MRV completed the acquisition of approximately 97% of
the outstanding capital stock of Fiber Optic Communications, Inc., a Republic of
China corporation. Fiber Optic Communications is a manufacturer of passive fiber
optic components for Wavelength Division Multiplexing. Under the terms of the
purchase agreement, Fiber Optic Communications shareholders received
approximately $48.6 million in cash and approximately 4.7 million shares of MRV
common stock and options to purchase 680,000 shares of MRV common stock for a
total purchase price of approximately $309.7 million. The issuance price of the
MRV common stock was approximately $53 per share, which was determined based on
the average market price five days before and after the terms were agreed upon.
The options to purchase MRV common stock are exercisable at $3.00 per share,
have an aggregate intrinsic value of $14.1 million, and vest over a four-year
period. The acquisition is being accounted for using the purchase method of
accounting. The excess purchase price paid over the fair value of the net
identifiable assets acquired of $261.5 million has been recorded as goodwill and
is being amortized on a straight-line basis over 5 years. The deferred
compensation is being amortized using the graded vesting method over 4 years.

     On May 1, 2000, MRV completed the acquisition of all of the outstanding
capital stock of Jolt, an Israeli corporation. Jolt designs, manufactures and
sells multi-port wireless optics communications equipment. Under the terms of
the purchase agreement, shareholders received approximately 1.1 million shares
of MRV common stock. In addition, the employees of Jolt received options to
purchase approximately 849,000 shares of common stock of MRV. The purchase price
aggregated approximately $57.7 million. The issuance price of the common stock
was approximately $31 per share, which was determined based on the average
market price five days before and after the terms of the acquisition were agreed
upon. The options to purchase common stock are exercisable at $6 per share, have
an aggregate intrinsic value of $25.0 million, and vest over an employment
period of four years. The acquisition is being accounted for using the purchase
method of accounting. The excess purchase price paid over the fair value of the
net identifiable assets acquired of $33.7 million has been recorded as goodwill
and is being

                                      F-14
<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

amortized on a straight-line basis over 5 years. The deferred compensation of
approximately $25.0 million is being amortized using the graded vesting method
over four years.


     On July 12, 2000, MRV completed the acquisition of all of the outstanding
capital stock of Quantum Optech Inc., a Republic of China corporation. Quantum
Optech is a manufacturer of optical thin film coating and filters for Dense
Wavelength Division Multiplexing. Under the terms of the purchase agreement,
Quantum Optech shareholders received approximately 1.0 million shares of MRV
common stock and options to purchase approximately 160,000 shares of MRV common
stock for a total purchase price of approximately $36.1 million. The issuance
price of the MRV common stock was approximately $30 per share, which was
determined based on the average market price five days before and after the
terms were agreed upon. The options to purchase MRV common stock are exercisable
at $3.00 per share, have a fair value of $4.0 million, of which unvested
options have an intrinsic value of $2.7 million and vested options have a fair
value of $1.3 million, and the remaining vest over a four-year period. The
excess purchase price paid over the fair value of the net identifiable assets
acquired of $27.8 million has been recorded as goodwill and is being amortized
on a straight-line basis over 5 years. The deferred compensation is being
amortized using the graded vesting method over 4 years.



     On July 12, 2000, MRV completed the acquisition of AstroTerra, a California
corporation that develops and manufactures free-space optical wireless
communication systems to connect data and telecommunications networks. MRV
exchanged approximately 1.6 million shares of its common stock for all of the
outstanding capital stock of AstroTerra. In addition, the employees of
AstroTerra received options to purchase approximately 809,000 shares of common
stock of MRV. The purchase price aggregated approximately $160.3 million. The
issuance price of the common stock was approximately $65 per share, which was
determined based on the average market price five days before and after the
terms of the agreement were agreed upon. The options to purchase common stock
are exercisable at approximately $3 per share, have a fair value of
approximately $50.0 million and vest over an employment period of four years.
The deferred compensation is being amortized using the graded vesting method
over four years. The excess purchase price paid over the fair value of the net
identifiable assets acquired of $108.4 million has been recorded as goodwill and
is being amortized on a straight-line basis over 5 years.



     On July 21, 2000, MRV completed the acquisition of approximately 99% of the
outstanding capital stock of Optronics International Corp., a Republic of China
corporation. Optronics International is a manufacturer of high temperature
semiconductor lasers, transceivers and detectors for optical networks. Under the
terms of the purchase agreement, Optronics International shareholders received
approximately 3.4 million shares of MRV common stock and options to purchase
approximately 800,000 shares of MRV common stock for a total purchase price of
approximately $123.9 million. The issuance price of the MRV common stock was
approximately $30 per share, which was determined based on the average market
price five days before and after the terms were agreed upon. The options to
purchase MRV common stock are exercisable at $3.00 per share, have a fair value
of $20.0 million, of which unvested options have an intrinsic value of $13.4
million and vested options have a fair value of $6.6 million, and the remaining
vest over a four-year period. The acquisition is being accounted for using the
purchase method of accounting. The excess purchase price paid over the fair
value of the net identifiable assets acquired of $99.4 million has been recorded
as goodwill and is being amortized on a straight-line basis over 5 years. The
deferred compensation is being amortized using the graded vesting method over 4
years.


                                      F-15
<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

     The purchase price of Fiber Optic Communications, Jolt, Quantum Optech,
AstroTerra, Optronics International and Other were allocated as follows (in
thousands, unaudited):

<Table>
<S>                                                             <C>
Purchase Price..............................................    $704,241
Allocation of purchase price:
  Net tangible assets.......................................      51,902
  Deferred stock compensation...............................     106,602
  Goodwill and other intangibles............................     545,737
</Table>

     The results of operations of these acquisitions have been included in MRV's
consolidated financial statements from the date of acquisition. The following
unaudited pro forma financial information presents the combined results of
operations of these acquisitions as if the acquisitions had occurred as of
January 1, 1999, giving effect to certain adjustments, including amortization of
goodwill and other intangibles and deferred stock compensation charges. The
unaudited pro forma share data assumes the shares issued in connection with
these acquisitions were outstanding as of January 1, 1999 (in thousands, except
per share amounts, unaudited).

     The following unaudited pro forma financial information presents the
combined results of operations of these acquisitions as if the acquisitions had
occurred as of January 1, 1999, giving effect to certain adjustments, including
amortization of goodwill and other intangibles and deferred stock compensation
charges. The unaudited pro forma share data assumes the shares issued in
connection with these acquisitions were outstanding as of January 1, 1999. (in
thousands, except per share amounts, unaudited).

<Table>
<Caption>
                                                                   DECEMBER 31,
                                                              ----------------------
                                                                1999         2000
                                                              ---------    ---------
<S>                                                           <C>          <C>
Pro forma revenue...........................................  $ 322,645    $ 335,486
Pro forma net loss..........................................  $(115,775)   $(143,044)
Pro forma basic and diluted net loss per share..............  $   (1.75)   $   (1.83)
Pro forma basic and diluted weighted average shares
  outstanding...............................................     66,247       77,996
</Table>

ACQUISITION-RELATED UNEARNED STOCK COMPENSATION

     During 2000, MRV recorded acquisition-related purchase consideration of
$106.6 million as unearned stock-based compensation, in accordance with
Financial Accounting Standards Board Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation." This amount represents the
portion of the purchase consideration related to shares issued contingent on
continued employment of certain employee stockholders and the intrinsic value of
stock options assumed that are earned as future services are provided by
employees. The compensation is being recognized over the related employment
period using the graded vesting method. A total of $43.7 million of expense was
recognized for 2000.

                                      F-16
<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

4. INVESTMENTS IN SUBSIDIARIES

     The following table presents information regarding investments made by MRV
in subsidiaries accounted for under the equity method of accounting or
consolidated. Subsidiaries in which MRV owns greater than 50% ownership or
exercises control have been consolidated in the accompanying consolidated
financial statements.

<Table>
<Caption>
         SUBSIDIARY             OWNERSHIP %                  FORM OF CONSIDERATION(5)
         ----------             -----------                  ------------------------
<S>                             <C>              <C>
CONSOLIDATED SUBSIDIARIES
EDSLan SRL                      80%(1)           Purchased an additional 10% ownership in 2000
                                                 for approximately $1.5 million; purchased an
                                                 additional 10% ownership in 1999 for
                                                 approximately $1.5 million; purchased an
                                                 additional 10% ownership in 1997 for
                                                 approximately $500,000; purchased 50% ownership
                                                 in 1996 for approximately $1.1 million.
Tecnonet SRL                    60%(2)           Purchased an additional 10% ownership in 1999
                                                 for approximately $600,000; purchased 50%
                                                 ownership in 1998 for approximately $3.1
                                                 million.
RDS                             62.5%            Purchased an additional 12.5% ownership in 1999
                                                 for approximately $2.4 million; purchased 50%
                                                 ownership in 1998 for approximately $8.0
                                                 million.
Charlotte's Networks            90%(3)           Issued 1.0 million shares of common stock valued
                                                 at approximately $61.5 million for approximately
                                                 10% in 2000.

EQUITY METHOD SUBSIDIARIES
RedC Optical                    35%              $5.0 in cash and issued 150,000 shares
                                                 of common stock valued at approximately $11.5
                                                 million for approximately 32% in 2000.
Other                           Various(4)       Issued 646,000 shares of common stock valued at
                                                 approximately $16.7 million for ownership
                                                 interest in various non-consolidated equity
                                                 investments.
</Table>

-------------------------
(1) MRV receives 95 percent of EDSLan's profits or losses from the date of each
    investment.

(2) MRV receives 90 percent of Tecnonet's profits or losses from the date of
    each investment.

(3) MRV's ownership on a fully diluted basis (assuming exercise of all stock
    options) is approximately 53 percent.

(4) Represents various investments, all of which are less than 50% ownership and
    not consolidated.

     Income and losses from non-consolidated equity method subsidiaries are
included in "other income (expense)" in the accompanying consolidated statements
of operations.

(5) The purchase price for each of these acquisitions is based on the common
    stock and cash consideration provided. The issuance prices of MRV common
    stock used in the calculation of the purchase price is based on the average
    market price five days before and after the terms were agreed upon.

                                      F-17

<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

5. ACCRUED LIABILITIES

     Accrued liabilities consisted of the following (in thousands):

<Table>
<Caption>
                                                               1999       2000
                                                              -------    -------
<S>                                                           <C>        <C>
Payroll and related.........................................  $ 7,055    $16,851
Other.......................................................    8,348     17,193
                                                              -------    -------
                                                              $15,403    $34,044
                                                              =======    =======
</Table>

6. INCOME TAXES

     The provision (benefit) for income taxes for the three years in the period
ended December 31, 2000 (including provision of $1.6 million related to the
extraordinary gain in 1998) is as follows (in thousands):

<Table>
<Caption>
                                                         1998      1999        2000
                                                        ------    -------    --------
<S>                                                     <C>       <C>        <C>
Current
  Federal.............................................  $3,306    $(2,139)   $  7,344
  State...............................................   1,093       (413)      5,622
  Foreign.............................................   3,324      1,701       6,841
                                                        ------    -------    --------
                                                         7,723       (851)     19,807
Deferred
  Federal.............................................    (176)    (1,487)    (17,354)
  State...............................................     (31)        45      (7,137)
  Foreign.............................................    (170)       140        (714)
                                                        ------    -------    --------
                                                          (377)    (1,302)    (25,205)
                                                        ------    -------    --------
                                                        $7,346    $(2,153)   $ (5,398)
                                                        ======    =======    ========
</Table>

     The income tax provision (benefit) differs from the amount computed by
applying the federal statutory income tax rate to income before taxes as
follows:

<Table>
<Caption>
                                                              FOR THE YEARS ENDED
                                                                  DECEMBER 31,
                                                              --------------------
                                                              1998    1999    2000
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
Income tax provision (benefit) at statutory federal rate....  (35)%    34%     34%
State and local income taxes, net of federal income tax
  effect....................................................   (6)      6       6
Permanent differences.......................................   --     (15)    (30)
Research and development credit.............................    6       6      --
Income tax on extraordinary gain............................  (10)     --
Foreign taxes at rates different than domestic rates........   (2)    (17)     (3)
Change in valuation reserve.................................   --      --     (10)
                                                              ---     ---     ---
                                                              (43)%    14%     (3)%
                                                              ===     ===     ===
</Table>

                                      F-18

<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

     The components of deferred income taxes as of December 31, 1999 and 2000
are as follows (in thousands):

<Table>
<Caption>
                                                               1999        2000
                                                              -------    --------
<S>                                                           <C>        <C>
Allowance for doubtful accounts.............................  $ 2,548    $  2,083
Inventory reserve...........................................    3,811       6,133
Warranty reserve............................................    1,072         647
Deferred stock compensation.................................       --       6,630
Net operating losses........................................       --      29,014
Accrued liabilities.........................................       --       2,158
Other.......................................................     (524)      1,463
                                                              -------    --------
                                                                6,907      48,128
     Valuation allowance....................................       --     (16,901)
                                                              -------    --------
     Net short-term deferred income tax assets..............    6,907      31,227
Purchased technology in progress............................    5,724          --
Depreciation and amortization...............................     (400)      6,209
                                                              -------    --------
     Net long-term deferred income tax assets...............    5,324       6,209
                                                              -------    --------
                                                              $12,231    $ 37,436
                                                              =======    ========
</Table>

     Realization of the net deferred tax assets is dependent on MRV's ability to
carry losses back to prior periods or on generating sufficient taxable income
during the periods in which temporary differences will reverse. Management
reviews its deferred tax assets and has provided a valuation allowance based on
its assessment of the expected future benefit to be ultimately received from
each asset identified. Although realization is not assured, management believes
it is more likely than not that the net deferred tax assets will be realized.

     MRV generated net operating loss carryforwards available of approximately
$56.4 million and $56.4 million for federal and state income tax purposes,
respectively for the year ended December 31, 2000. Prior to December 31, 2000,
there were no federal net operating loss carryforwards available. Prior to
December 31, 2000, MRV had generated total state net operating losses of $50.3
million available to offset future taxable income through 2014. For federal and
state income tax purposes, the net operating losses generated during 2000 are
available to offset future taxable income through 2020.

     In 1995, MRV, through a subsidiary in Israel, qualified for a program under
which it is eligible for a tax exemption on its income for a period of ten years
from the beginning of the benefits period. This benefit is due to expire in
2006. Due to operating losses at this subsidiary, no tax benefit was received in
2000. MRV received a tax benefit of approximately $300,000 in 1999.

     MRV does not provide United States federal income taxes on the
undistributed earnings of its foreign operations. MRV's policy is to leave the
income permanently invested in the country of origin. Such amounts will only be
distributed to the United States to the extent any federal income tax can be
fully offset by foreign tax credits.

7. SHORT-TERM OBLIGATIONS

     Short-term obligations consist of secured and unsecured lines of credit,
short-term loans and notes entered into with certain financial institutions. As
of December 31, 2000, these short-term obligations totaled $9.1 million.
Approximately $2.9 million in assets of MRV's subsidiaries have been pledged as
collateral on these borrowings. The weighted average interest rate on these
obligations is 6.1 percent.

                                      F-19



<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

These obligations are incurred and settled in the local currencies of the
respective subsidiaries. As of December 31, 2000, MRV had approximately $8.7
million of available short-terms borrowings.

8. LONG-TERM DEBT

     Long-term debt consisted of the following as of December 31, 2000 (in
thousands):

<Table>
<S>                                                           <C>
Secured notes payable to financial institutions bearing
  interest ranging from 6.5% to 18.0%, payable in monthly
  and quarterly installments of principal and interest
  through October 2012......................................  $13,031
Term loan with a financial institution bearing interest at
  7.0% as of December 31, 2000, payable in full in 2003.....   50,000
                                                              -------
                                                               63,031
  Less -- Current portion...................................   (2,774)
                                                              -------
                                                              $60,257
                                                              =======
</Table>

     The following summarizes the required principal payments on long-term debt
as of December 31, 2000 (in thousands):

<Table>
<Caption>
                  YEAR ENDING DECEMBER 31,
<S>                                                           <C>
  2001......................................................  $ 2,774
  2002......................................................    1,905
  2003......................................................   52,061
  2004......................................................    1,666
  2005......................................................    1,608
  Thereafter................................................    3,017
                                                              -------
                                                              $63,031
                                                              =======
</Table>

     Certain assets of MRV, primarily through its foreign subsidiaries, have
been pledged as collateral under these obligations.

9. INTEREST RATE SWAP

     In April 2000, MRV entered into an interest rate swap agreement to
effectively change the interest rate characteristics of its $50.0 million
variable-rate term loan presented in Long-Term Debt, with the objective of
eliminating fluctuations in its overall borrowing costs. The swap was entered
into concurrently with the issuance of the related debt. The notional amount,
interest payment and maturity dates of the swap match the principal, interest
payment and maturity dates of the related debt. Both the swap and term loan
expire in 2003. Accordingly, any market risk or opportunity associated with this
swap is offset by the opposite market impact on the related debt. Under the
agreement, MRV is committed to pay the financial institution interest based on a
principal balance of $50.0 million at a fixed rate of 7.11 percent as of
December 31, 2000, in exchange for the financial institution's commitment to pay
MRV interest on the same principal at the one-month LIBOR rate (6.6 percent as
of December 31, 2000). MRV includes the outcome of this interest rate swap
agreement in interest expense ($217,000 for the year ended December 31, 2000).

10. CONVERTIBLE SUBORDINATED NOTES

     In June 1998, MRV completed a private placement of $100.0 million principal
amount five-year, convertible subordinated notes (the Notes). The Notes bear
interest at five percent per year, payable semi-

                                      F-20

<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

annually, and are convertible into common stock at the option of the holders.
The conversion rate is 73.94 shares of common stock per $1,000 principal amount
of the Notes, equivalent to a conversion price of $13.52 per share, an initial
premium above market price. The conversion rate is subject to adjustment in
certain circumstances, including dividends payable in common stock, issuance of
stock rights to all holders of common stock or stock splits or distributions to
common stockholders in connection with a tender offer. If a change in control,
as defined, occurs, the holders of the Notes have the right to require MRV to
repurchase the Notes at face value along with any interest accrued. MRV has the
right, after June 2001, to redeem the Notes at 102 percent of face value, and
after June 2002 for 101 percent of face value. The Notes are not entitled to the
benefits of any sinking fund.

     In connection with the private placement, MRV incurred costs of $4.0
million. These costs are being amortized using the effective interest method
over five years, the life of the Notes. Amortization expense for the years ended
December 31, 1999 and 2000 was $681,000 and $723,000, respectively.

     In November 1998, MRV repurchased $10.0 million of the Notes for $5.3
million. MRV recorded an extraordinary gain of $2.8 million, net of tax, related
to the repurchase of the Notes. Included in this amount is the portion of the
Notes amortization of expense of the costs attributable to the Notes
repurchased.

11. COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

     The Company leases all of its facilities and certain equipment under
noncancelable capital and operating lease agreements expiring in various years
through 2049. The aggregate minimum annual lease payments under leases in effect
on December 31, 2000 were as follows (in thousands):

<Table>
<Caption>
                                                              CAPITAL    OPERATING
                                                              LEASES      LEASES
                                                              -------    ---------
<S>                                                           <C>        <C>
  2001......................................................   $ 207      $ 3,756
  2002......................................................     200        3,007
  2003......................................................     200        2,256
  2004......................................................     152          777
  2005......................................................      64          467
  Thereafter................................................      68        2,242
                                                               -----      -------
                                                               $ 891      $12,505
                                                                          =======
  Less -- Amount representing interest......................    (107)
                                                               -----
                                                                 784
  Less -- Current portion...................................    (163)
                                                               -----
                                                               $ 621
                                                               =====
</Table>

     Annual rental expense under noncancelable operating lease agreements for
the years ended December 31, 1998, 1999 and 2000 was $2.8 million, $4.7 million
and $4.9 million, respectively.

ROYALTY COMMITMENT

     Through subsidiaries in Israel, MRV is obligated to the Office of the Chief
Scientist of the Government of Israel (Chief Scientist) with respect to the
government's participation in research and development expenses for certain
products. Amounts received by MRV from the participation of the Chief Scientist
were offset against the related research and development expenses incurred.
Accordingly, MRV's

                                      F-21

<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

royalty to the Chief Scientist is calculated at a rate of three percent to five
percent of sales of such products developed with the participation up to the
dollar amount of such participation. MRV received participation of $350,000 and
$500,000 for the year ended December 31, 1998 and 1999, respectively. No
participation was received for the year ended December 31, 2000. The remaining
future obligation as of December 31, 2000 is approximately $913,000 which is
contingent on generating sufficient sales of this selected product line.

ACCOUNTS RECEIVABLE

     MRV, through foreign subsidiaries, has agreements with several financial
institutions to sell its receivables with recourse; in the event of customer's
default, MRV must repurchase the receivables. At December 31, 2000 the Company
is contingently liable for approximately $23.4 million relating to such
receivables sold with recourse. No gain or loss on the sale of these receivables
has been included in the accompanying consolidated statements of operations.

LITIGATION

     In December, 1996, Datapoint brought an action against Nbase
Communications, Inc., a subsidiary of the Company ("Nbase") and several other
defendants in the United States District Court, for the Eastern District of New
York alleging infringement of two of Datapoint's patents related to LANs, more
particularly to claimed improved LANs which interoperatively combine additional
enhanced capability and/or which provide multiple different operational
capabilities. In the same lawsuit, Datapoint alleges that other defendants
including Dayna Communications, Inc., Sun Microsystems, Inc., Adaptec, Inc.,
International Business Machines Corporation, Lantronix and SVEC America Computer
Corporation have infringed the same two patents. The Company has been advised
that several other companies, including Intel Corporation and Cisco Systems,
Inc., have also had actions brought against them by Datapoint with respect to
the same two patents. The action against Nbase and its codefendants seeks, among
other things, an injunction against the manufacture or sale of products which
embody the inventions set forth in the two patents and single and treble damages
for the alleged infringement. Datapoint's complaint also seeks to have the court
determine that the named defendants shall serve as representatives of a
defendant class of manufacturers, vendors and users of products allegedly
infringing on Datapoint's claimed patents from which defendant class Datapoint
seeks the same relief as from the individual defendants. In February 1999, the
court entered judgement in favor of the defendants and Datapoint filed a notice
of appeal. The Company is cooperating with several of the defendants in pursuit
of common defenses and believes the claim is without merit. If a conclusion
unfavorable to the Company is reached, however, Datapoint's claim could
materially affect the business, operating results and financial condition of the
Company.

     The Company has received notices from third party 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 senders in
an effort to demonstrate that the Company's products and/or processes do not
violate any patents. The Company is currently involved in such discussions with
Lucent, Ortel, Rockwell and the Lemelson Foundation. The Company does not
believe that any of its products or processes violate any of the patents
asserted by these parties and the Company further believes that it has
meritorious defenses if any legal action is taken by any of these parties.
However, if one or more of these parties was to assert a claim and gain a
conclusion unfavorable to the Company such claims could materially and adversely
affect the business, operating results and financial condition of the Company.

                                      F-22
<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

     From time to time, MRV is a defendant in lawsuits involving matters which
are routine to the nature of its business. Management is of the opinion that the
ultimate resolution of all such matters will not have a material adverse effect
on the accompanying consolidated financial statements.

12. STOCKHOLDERS' EQUITY

AUTHORIZED SHARES

     On May 10, 2000, the Board of Directors and stockholders of MRV approved an
increase in the authorized number of shares of its $0.0017 par value common
stock from 80.0 million to 160.0 million shares relating to the two-for-one
stock split distributed on May 26, 2000. MRV is authorized to issue up to 1.0
million shares of its $0.01 par value preferred stock, of which none has been
issued or outstanding as of December 31, 1999 and 2000.

STOCK SPLIT

     The Board of Directors authorized the splitting of MRV's common stock on a
two-for-one basis for stockholders of record on May 11, 2000 and the resulting
shares from the split were distributed on May 26, 2000. All references to share
and per-share data for all periods presented have been adjusted to give effect
to this two-for-one stock split.

STOCK OPTIONS

     MRV has various stock option and warrant plans that provide for granting
options and warrants to purchase shares of MRV's common stock to employees,
directors and non-employees performing consulting or advisory services for MRV.
The plans provide for the granting of options, which meet the Internal Revenue
Code requirements for qualification as incentive stock options, as well as
nonstatutory options. Under these plans, stocks option and warrant exercise
prices generally equal the fair market value of MRV's common stock at the date
of grant. The options and warrants generally vest over three to five years with
expiration dates ranging from six and ten years from the date of grant depending
on the plan. The plans provide for the issuance of 13.4 million shares of common
stock over the remaining life of the plans.

     In connection with the anticipated separation of Luminent, in July 2000,
Luminent's Board of Directors and MRV approved Luminent's 2000 Stock Option Plan
(Luminent's Plan). Luminent's Plan provides for grants of qualified incentive
stock options, non-qualified stock options, restricted stock awards and other
stock-based awards to purchase Luminent common stock to officers, employees,
directors, consultants and advisors of Luminent. Stock-based awards are
generally granted at not less than fair market value at the grant date, and
typically vest over a four-year period and expire ten years after the grant
date. There have been 10.4 million shares of Luminent common stock reserved for
issuance under Luminent's Plan. As of December 31, 2000, 4.7 million options to
purchase Luminent common stock have been granted under Luminent's Plan.

     In July 2000, Luminent and MRV entered into four-year employment contracts
with the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of
Luminent. The agreements provide for annual salaries, performance bonuses and a
combination of stock options to purchase common stock of MRV and Luminent. The
CEO received approximately 316,000 options to purchase shares of MRV common
stock at $32.56 per share (a substantial discount) expiring in five years. The
CFO received approximately 22,000 options to purchase shares of MRV common stock
at $33.44 per share (a substantial discount) expiring in five years. These
options are immediately exercisable, however they provide for the repurchase in
the event of voluntary termination. These grants have been accounted for under
APB No. 25

                                      F-23
<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

and the intrinsic value (fair market value less exercise price) results in
additional deferred stock compensation of approximately $10.8 million that is
being amortized over the four year vesting period. Furthermore, Luminent granted
4.8 million and 800,000 of its stock options to the CEO and CFO, respectively.
The options are exercisable at $6.25 per share and vest over four years. These
grants have been accounted for in accordance with APB No. 25 and the intrinsic
value (original mid point of filing range, $14, less $6.25) resulted in
aggregate deferred stock compensation of approximately $43.4 million. The
deferred stock compensation is being amortized using the graded vesting method
over four years. The deferred stock compensation incurred from the granting of
MRV and Luminent options for a total of $54.2 million has been included in the
consolidated financial statements of MRV.

     Stock option information with respect to MRV's stock option and warrant
plans is as follows:

<Table>
<Caption>
                                                     1998                 1999                 2000
                                              ------------------   ------------------   ------------------
                                                       WTD. AVG.            WTD. AVG.            WTD. AVG.
                                              SHARES   EX. PRICE   SHARES   EX. PRICE   SHARES   EX. PRICE
                                              ------   ---------   ------   ---------   ------   ---------
<S>                                           <C>      <C>         <C>      <C>         <C>      <C>
Outstanding, beginning of year..............   2,416     $4.39     4,082      $2.49      3,980    $ 4.36
Granted.....................................   2,000      9.24     1,122       9.21      5,959      8.14
Exercised...................................    (236)     2.26      (744)      2.31     (1,660)     2.52
Forfeited...................................     (98)     5.55      (480)      2.63        (67)     2.56
Cancelled in repricing......................  (2,996)     8.93        --         --         --        --
Granted in repricing........................   2,996      2.63        --         --         --        --
Outstanding, end of year....................   4,082     $2.49     3,980      $4.36      8,212    $ 6.29
                                                         =====                =====               ======
Weighted average fair value of options
  granted during year.......................             $3.11                $7.33               $20.58
                                                         =====                =====               ======
</Table>

     During 2000, MRV granted 3.8 million options to purchase MRV common stock
with exercises that differed from the market price of the stock on the grant
date. The weighted average exercise price and weighted average fair value of
these options were $5.67 and $21.99 per share, respectively.

     Information about MRV stock options outstanding at December 31, 2000 is
summarized as follows:

<Table>
<Caption>
                 NUMBER OUTSTANDING      WEIGHTED AVERAGE       NUMBER EXERCISABLE
EXERCISE PRICE       AS OF 2000       REMAINING CONTRACT LIFE       AS OF 2000
--------------   ------------------   -----------------------   ------------------
<S>              <C>                  <C>                       <C>
$1.82 - $2.63          3,511                6.29 Years                3,337
$2.75 - $2.94          1,081                8.09 Years                  221
$3.00 - 33.00          3,620                9.55 Years                  322
                       -----                                          -----
                       8,212                                          3,880
                       =====                                          =====
</Table>

                                      F-24
<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

     Stock option information with respect to Luminent's stock option plan is as
follows:

<Table>
<Caption>
                                                                  YEAR ENDED
                                                              DECEMBER 31, 2000
                                                              ------------------
                                                                       WTD. AVG.
                                                              SHARES   EX. PRICE
                                                              ------   ---------
<S>                                                           <C>      <C>
Outstanding, beginning of year..............................      --        --
Granted.....................................................  10,285     $8.77
Exercised...................................................      --        --
Forfeited...................................................      --        --
                                                              ------     -----
Outstanding, end of year....................................  10,285     $8.77
                                                              ======     =====
Weighted average fair value of options granted during
  year......................................................             $9.57
                                                                         =====
</Table>

     During 2000, Luminent granted 5.2 million options to purchase Luminent
common stock with exercises that differed from the market price of the stock on
the grant date. The weighted average exercise price and weighted average fair
value of these options were $6.25 and $11.10 per share, respectively.

     Information about Luminent's stock options outstanding at December 31, 2000
is summarized as follows (in thousands, except share prices):

<Table>
<Caption>
                 NUMBER OUTSTANDING                             NUMBER EXERCISABLE
                  AT DECEMBER 31,        WEIGHTED AVERAGE        AT DECEMBER 31,
EXERCISE PRICE          2000          REMAINING CONTRACT LIFE          2000
--------------   ------------------   -----------------------   ------------------
<S>              <C>                  <C>                       <C>
$6.00 - 6.25            5,767               9.53 years                1,400
$12.00                  4,518               9.85 years                   40
                       ------                                         -----
                       10,285                                         1,440
                       ======                                         =====
</Table>

ACCOUNTING FOR STOCK-BASED COMPENSATION

     SFAS No. 123 permits companies to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant. The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. Because MRV's stock-based compensation plans have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate,
management believes that the existing option valuation models do not necessarily
provide a reliable single measure of the fair value of a wards from the plan.
Therefore, as permitted, MRV applies the existing accounting rules under APB No.
25 and provides pro forma net income (loss) and pro forma earnings (loss) per
share disclosures for stock-based awards made during the year as if the fair
value method defined in SFAS No. 123 had been applied. Net loss and net loss per
share for each of the three years in the period ended December 31, 2000 would
have increased to the following pro forma amounts (in thousands, except per
share data):

<Table>
<Caption>
                                                      1998        1999        2000
                                                    --------    --------    ---------
<S>                                                 <C>         <C>         <C>
Additional compensation expense...................  $  1,835    $  2,888    $  24,998
Pro forma net loss................................  $(21,941)   $(15,797)   $(177,951)
Pro forma basic net loss per share................  $  (0.41)   $  (0.29)   $   (2.71)
Pro forma diluted net loss per share..............  $  (0.41)   $  (0.29)   $   (2.71)
</Table>

                                      F-25
<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

     The following assumptions were applied: (i) no expected dividend yield for
all periods, (ii) expected volatility of 22 percent for 1998, 64 percent for
1999 and 78 percent for 2000, (iii) expected lives of 4 to 6 years for all
years, (iv) and risk-free interest rates ranging from 4.23 percent to 6.73
percent for all years.

COMMON STOCK PURCHASE WARRANTS

     In connection with various public and private offerings of common stock and
acquisitions MRV has issued warrants to purchase additional shares of common
stock.

     A summary of warrant activities for the three years ended December 31, 2000
is as follows (in thousands, except share prices):

<Table>
<Caption>
                                                         NUMBER OF SHARES   EXERCISE PRICES
                                                         ----------------   ---------------
<S>                                                      <C>                <C>
Balance, December 31, 1997.............................        5,212        $0.14 to 16.25
  Issued...............................................          842                 17.50
  Exercised............................................         (132)         2.13 to 2.80
  Canceled.............................................         (152)                 4.21
                                                              ------        --------------
Balance, December 31, 1998.............................        5,770         0.14 to 17.50
  Issued...............................................           --                    --
  Exercised............................................         (874)        2.40 to 10.00
  Canceled.............................................       (1,556)        0.14 to 13.38
                                                              ------        --------------
Balance, December 31, 1999.............................        3,340         2.13 to 17.50
  Issued...............................................           --                    --
  Exercised............................................         (895)        2.29 to 16.25
  Canceled.............................................           (5)                 2.13
                                                              ------        --------------
Balance, December 31, 2000.............................        2,440        $2.13 to 17.50
                                                              ======        ==============
</Table>

     In November 1996, MRV completed a private placement of 400,000 stock and
1.0 million three-year warrants to purchase common stock for a total price of
$4.0 million. During 1999, prior to the expiration of the three-year warrants,
800,000 warrants were exercised at $10.00 per share, for total proceeds of $8.0
million. The remaining 200,000 warrants expired.

13. SEGMENT REPORTING AND GEOGRAPHICAL INFORMATION

     MRV operates under a business model that creates and manages start-up
companies and independent business units. These companies fall into two
segments: operating entities and development stage enterprises. Segment
information is therefore being provided on this basis which differs from prior
period presentations.

     Development stage enterprises that MRV has created or invested in are
developing optical components, subsystems and networks and products for the
infrastructure of the Internet. Operating entities of MRV design, manufacture
and distribute optical components, optical subsystems, optical networking
solutions, and Internet infrastructure products.

     The accounting policies of the segments are the same as those described in
the summary of significant accounting polices. MRV evaluates segment performance
based on revenues and operating income (loss) of each segment. As such, there
are no separately identifiable segment assets nor are there any separately
identifiable statements of operations data below operating income.

                                      F-26
<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

     Business segment net revenues for each of the three years in the period
ended December 31, 2000 (in thousands):

<Table>
<Caption>
                                                         YEARS ENDED DECEMBER 31,
                                                     --------------------------------
                                                       1998        1999        2000
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Operating entities.................................  $264,075    $288,524    $319,394
Development stage enterprises......................        --          --          --
                                                     --------    --------    --------
          Total revenues...........................  $264,075    $288,524    $319,394
                                                     ========    ========    ========
</Table>

     There were no inter-segment sales for the years ended December 31, 2000,
1998 and 1999.

     Net revenues by groups of products for each of the years in the period
ended December 31, 2000 (in thousands):

<Table>
<Caption>
                                                         YEARS ENDED DECEMBER 31,
                                                     --------------------------------
                                                       1998        1999        2000
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Optical passive components.........................        --       3,687      29,148
Optical active components..........................    38,596      67,722      97,335
Switches and routers...............................   110,301     108,000      80,784
Remote device management...........................    37,738      28,698      19,167
Network physical infrastructure equipment..........    42,765      50,521      56,747
Services...........................................    31,641      23,461      20,892
Other..............................................     3,034       6,433      15,321
                                                     --------    --------    --------
          Total revenues...........................  $264,075    $288,524    $319,394
                                                     ========    ========    ========
</Table>

     Business Segment Operating Income (Loss) for each of the three years in the
period ended December 31, 2000 (in thousands):

<Table>
<Caption>
                                                        YEARS ENDED DECEMBER 31,
                                                    ---------------------------------
                                                      1998        1999        2000
                                                    --------    --------    ---------
<S>                                                 <C>         <C>         <C>
Operating entities................................  $(18,141)   $  4,017    $(100,759)
Development stage enterprises.....................    (2,043)    (20,011)     (48,810)
                                                    --------    --------    ---------
          Total operating loss....................  $(20,184)   $(15,994)   $(149,569)
                                                    ========    ========    =========
</Table>

     For each of the three years in the period ended and as of December 31,
2000, MRV had no single customer that accounted for more than 10 percent of
revenues or accounts receivable. MRV does not track customer revenue by region
for each individual reporting segment. A summary of external revenue by region
follows (in thousands):

<Table>
<Caption>
                                                         YEAR ENDED DECEMBER 31,
                                                     --------------------------------
                                                       1998        1999        2000
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
United States......................................  $107,376    $122,054    $119,190
European Community.................................   118,881     129,994     160,398
Middle East........................................     5,634       4,166       2,483
Pacific Rim........................................    24,892      28,921      31,891
Other..............................................     7,292       3,389       5,432
                                                     --------    --------    --------
          Total net sales..........................  $264,075    $288,524    $319,394
                                                     ========    ========    ========
</Table>

                                      F-27
<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

     Operating loss before other income (expense), provision (benefit) for
income taxes and extraordinary item (in thousands):

<Table>
<Caption>
                                                         YEAR ENDED DECEMBER 31,
                                                    ---------------------------------
                                                      1998        1999        2000
                                                    --------    --------    ---------
<S>                                                 <C>         <C>         <C>
United States.....................................  $(28,280)   $ (5,781)   $ (69,671)
Foreign...........................................     8,096     (10,213)     (79,898)
                                                    --------    --------    ---------
          Operating loss..........................  $(20,184)   $(15,994)   $(149,569)
                                                    ========    ========    =========
</Table>

14. LAN BUSINESS

     In 1999 MRV recorded one-time charges of approximately $13.8 million
primarily related to the write-down of inventories related to its LAN product
lines. These charges have been included in "cost of goods sold" for the year
ended December 31, 1999 in the accompanying consolidated statement of
operations. In February 2000, MRV discontinued manufacturing and supporting its
LAN product lines.

15. 401(K) PLANS

     MRV has 401(K) savings plans (the Plans) at certain subsidiaries under
which all eligible employees may participate. The Plans provide for MRV to make
matching contributions to all eligible employees. In 1999 and 2000,
approximately $679,000 and $731,000, respectively, was charged as expense
related to these plans.

16. SUPPLEMENTAL STATEMENTS OF CASH FLOW INFORMATION (IN THOUSANDS)

<Table>
<Caption>
                                                          FOR THE YEARS ENDED DECEMBER 31,
                                                         ----------------------------------
                                                           1998        1999         2000
                                                         --------    --------    ----------
<S>                                                      <C>         <C>         <C>
Supplemental disclosure of cash flow information:
  Cash paid during period for interest.................   $2,569      $1,652      $  3,635
  Cash paid during period for income taxes.............   $9,945      $4,887      $    130
Supplemental schedule of noncash investing and
  financing activities:
  Fair value of asset acquired, net of cash received...   $   --      $   --      $ 48,611
  Less: Liabilities assumed............................       --          --       (44,190)
                                                          ------      ------      --------
  Cash received in acquisitions........................   $   --      $   --      $  4,421
                                                          ------      ------      --------
  Cash used in acquisitions............................       --          --        48,938
                                                          ------      ------      --------
  Cash used in acquisitions, net of cash received......   $   --      $   --      $ 44,517
                                                          ======      ======      ========
Common stock issued in connection with investments in
  subsidiaries.........................................   $   --      $   --      $ 90,126
</Table>

                                      F-28
<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

17. QUARTERLY FINANCIAL DATA (UNAUDITED)

     (in thousands, except per share amounts)

<Table>
<Caption>
                                        FIRST QUARTER    SECOND QUARTER    THIRD QUARTER    FOURTH QUARTER
                                        -------------    --------------    -------------    --------------
<S>                                     <C>              <C>               <C>              <C>
YEAR ENDED DECEMBER 31, 2000
Revenues, net.........................     $65,072          $ 73,935         $ 82,720          $ 97,667
Costs and expenses:
  Cost of goods sold..................      42,736            45,793           47,910            66,932
  Research and development............      11,891            14,758           21,803            25,626
  Selling, general and
     administrative...................      16,028            26,467           52,699            29,506
  Amortization of goodwill and other
     intangibles......................          --            12,055           27,348            27,411
                                           -------          --------         --------          --------
                                            70,655            99,073          149,760           149,475
     Operating loss...................      (5,583)          (25,138)         (67,040)          (51,808)
Other income (expense), net...........        (488)           (1,190)          (5,764)           (2,136)
                                           -------          --------         --------          --------
     Loss before provision (benefit)
       for income taxes and minority
       interest.......................      (6,071)          (26,328)         (72,804)          (53,944)
Provision (benefit) for income
  taxes...............................        (494)            1,377            1,005            (7,286)
Minority interest.....................        (287)              (45)            (570)            1,698
                                           -------          --------         --------          --------
     Net loss.........................     $(5,864)         $(27,750)        $(74,379)         $(44,960)
                                           =======          ========         ========          ========
Basic and diluted earnings per
  share...............................     $ (0.10)         $  (0.44)        $  (1.06)         $  (0.62)
Basic and diluted weighted averages
  shares..............................      56,850            62,754           70,122            72,768
                                           =======          ========         ========          ========
YEAR ENDED DECEMBER 31, 1999
Revenues, net.........................     $70,116          $ 73,251         $ 71,254          $ 73,903
Costs and expenses:
  Cost of goods sold..................      46,366            47,595           44,653            58,828
  Research and development............       9,592             8,572            8,476             9,806
  Selling, general and
     administrative...................      14,718            14,750           15,581            22,474
  Amortization of goodwill and other
     intangibles......................          --             1,142              951             1,014
                                           -------          --------         --------          --------
                                            70,676            72,059           69,661            92,122
     Operating income (loss)..........        (560)            1,192            1,593           (18,219)
Other income (expense), net...........         278               132              165              (253)
                                           -------          --------         --------          --------
     Income (loss) before provision
       (benefit) for income taxes and
       minority interest..............        (282)            1,324            1,758           (18,472)
Provision (benefit) for income
  taxes...............................         627               782            1,169            (4,731)
Minority interest.....................          --               (17)             (22)              649
                                           -------          --------         --------          --------
     Net income.......................     $  (909)         $    525         $    567          $(13,092)
                                           =======          ========         ========          ========
Basic earnings (loss) per share.......     $ (0.02)         $   0.01         $   0.01          $  (0.24)
Diluted earnings (loss) per share.....     $ (0.02)         $   0.01         $   0.01          $  (0.24)
Basic weighted averages shares........      53,300            53,472           53,868            55,082
Diluted weighted averages shares......      53,300            57,621           60,154            55,082
                                           =======          ========         ========          ========
</Table>

                                      F-29
<PAGE>
                            MRV COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

18. EVENTS SUBSEQUENT TO FEBRUARY 19, 2001

     During the second quarter of 2001, the management of Luminent, MRV's
publicly traded subsidiary, approved and implemented a restructuring plan as a
result of the dramatic slowdown in demand for communications equipment. During
the six months ended June 30, 2001, Luminent recorded restructuring and other
one-time charges totaling $41.2 million resulting from the lower demand for
Luminent's products and pricing pressures stemming from the continuing
deterioration in the communications equipment industry, specifically the optical
components sector.

     In June, 2001, the FASB approved two pronouncements: SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets", which provide guidance on the accounting for business combinations to
be accounted for using the purchase method. Under the new rules, goodwill will
no longer be subject to amortization over its useful life. Rather, goodwill will
be subject to at least an annual impairment assessment. This assessment is a
fundamentally different two-step approach and is based on a comparison between a
reporting unit's fair value and its carrying value. Intangible assets have newly
defined criteria and will be accounted for separately from goodwill and will
continue to be amortized over their useful lives. MRV plans to adopt these
pronouncements on January 1, 2002. MRV is currently reviewing these standards to
determine the impact on its results of operations and its financial position.
The most significant anticipated effect on MRV's financial statements at
adoption would be the discontinuing of the amortization of goodwill and the
possible impairment loss measured as of the date of adoption.

     In September 2001, Luminent's President and Chief Executive Officer
resigned. In connection with the resignation, Luminent's President and Chief
Executive Officer received a severance package, as defined in the employment
agreement dated July 2000, providing severance payments of approximately $1.0
million and the immediate vesting of all outstanding MRV and Luminent stock
options held as of the date of resignation. The MRV and Luminent stock options
are exercisable through September 11, 2003. Additionally, an immediate
recognition of deferred compensation expenses of $18.9 million will be recorded
during the third quarter of 2001 as a result of the acceleration of these stock
options.

     In September 2001, MRV and Luminent jointly announced that MRV intends to
merge Luminent into MRV through the filing of a short-form merger. All Luminent
shareholders are entitled to receive 0.43 shares of MRV common stock for each
share of Luminent common stock held. Furthermore, outstanding Luminent employee
stock options will convert into options to purchase MRV common stock at the same
ratio. The merger is expected to be completed during the fourth quarter of 2001.

                                      F-30
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To MRV Communications, Inc.:

We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of MRV Communications, Inc.
and subsidiaries included in this Form 10-K, and have issued our report thereon
dated February 19, 2001 (except for matters discussed in Note 18 as to which the
date is October 4, 2001). Our audit was made for the purpose of forming an
opinion on the basic consolidated financial statements taken as a whole. The
schedule of valuation and qualifying accounts is the responsibility of the
Company's management and is presented for the purpose of complying with the
Securities and Exchange Commission's rules and it is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated financial
statements, and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.



/s/ Arthur Andersen LLP

Arthur Andersen LLP


Los Angeles, California
February 19, 2001

                                      F-31
<PAGE>

                            MRV COMMUNICATIONS, INC.

                Schedule II -- Valuation and Qualifying Accounts
                                 (in thousands)


<TABLE>
<CAPTION>
                                            Balance at                    Charged to
                                           Beginning of                    Costs and                      Balance at
                                              Period          Other        Expenses       Write-off     End of Period
                                           ------------     --------      ----------      ----------    -------------
<S>                                        <C>              <C>           <C>             <C>           <C>
Allowance for Doubtful Accounts
   Year ended December 31, 1998             $   4,252       $  2,647       $  2,591       $  (1,003)       $  8,487
   Year ended December 31, 1999             $   8,487       $     -        $  1,416       $  (1,452)       $  8,451
   Year ended December 31, 2000             $   8,451       $     -        $  3,833       $  (2,804)       $  9,480
</TABLE>


                                      F-32