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corresp

January 9, 2009

United States Securities and Exchange Commission

Division of Corporation Finance

100 F Street, N.E.,

Washington, DC 20549

Attn: Mr. Dennis C. Hult

    Re:

    Oculus Innovative Sciences, Inc.

Form 10-K for the fiscal year ended March 31, 2008

Filed June 13, 2008

File No. 1-33216

Dear Mr. Hult:

I am securities counsel for Oculus Innovative Sciences, Inc. (the “Company”). Set forth below is
the Company’s response to comments received from the staff of the Securities and Exchange
Commission (the “Staff”) in their letter dated December 17, 2008. The numbering of the response
corresponds to the numbering of the comment in the letter from the Staff.

Form 10-K for the period Ended March 31, 2008

Consolidated Financial Statements, page 63

Notes to Consolidated Financial Statements, page 71

Note 3 Summary of Significant Accounting Policies, page 73

Foreign Currency Reporting, page 77

    Comment 1.

    We note you recorded foreign currency gains of $2,594,000 for
the year ended March 31, 2008 in other income that relate to
working capital loans you made to your foreign subsidiaries.
You see you indicate these loans will be paid back to the
Company in the future when subsidiaries begin to generate
cash. Please tell us how the inclusion of this gain in
determining net income complies with paragraphs 15 and 20 of
FAS 52 or other U.S. GAAP. We note the Company subsequently
renegotiated the loans and effective April 1, 2008 classifies
exchange gains and losses on the loans as other comprehensive
income and loss.

    Response 1.

    The Company believes that including foreign currency gains in
determining net income for the year ended March 31, 2008 with
regards to its subsidiaries in Mexico and the Netherlands
complied with paragraphs 15 and 20 of FAS 52. The Company
reached this conclusion because management advanced the loans
with the expectation that the balance would be settled in the
foreseeable future and therefore the Company determined that
these intercompany loan balances should not be considered part
of its net investment in these entities.

    The loans matured on March 31, 2006. In the periods subsequent to that date, the
loans were classified as due on demand and short term in nature. Therefore, any
foreign currency gains and losses on the loans represented transaction gains and
losses that affected functional currency cash flows. In accordance with paragraph
15 of FAS 52, the Company reported these increases or decreases in actual and
expected functional currency cash flows in determining net income for the period in
which exchange rates changed. Additionally, since the intercompany loans were not
deemed to be “long-term-investment in nature,” the Company believed any gains and
losses associated with these transactions did not qualify to be reported as
translation adjustments, as noted in paragraph 20(b) of FAS 52.

    Effective April 1, 2008, the Company changed its characterization of the
intercompany loans in accordance with FAS 52 as specified in its disclosure on page
108 of the Form 10-K for the year ended March 31, 2008. The Company renegotiated
the notes with its subsidiaries in Mexico and the Netherlands allowing for a three
year maturity date that will be automatically extended in perpetuity in accordance
with local law. The Company does not anticipate settlement of the loan balances in
the foreseeable future and it is within management’s control to continually allow
these maturity dates to extend. The Company interprets the phrase “in the
foreseeable future” in paragraph 20(b) of FAS 52 to mean “through the date the net
investment is liquidated.” Therefore, the Company believes the appropriate
accounting for the renegotiated loans should be as discussed in paragraph 20(b) and
131 of FAS 52, which states “intercompany transactions of a long-term investment
nature are considered part of a parent’s net investment and accordingly, do not
give rise to transaction gains or losses in consolidated financial statements,”
and paragraph 131 of FAS 52 which explains that “transactions and balances for
which settlement is not planned or anticipated in the foreseeable future are
considered to be part of the net investment.”

    The Company determined to renegotiate the intercompany loans and revisit its
expectation that the loans would be paid in the foreseeable future based on the
following events. Since the completion of the Company’s initial public offering of
common stock on January 30, 2007, a primary aspect of its business strategy was to
position Microcyn, its platform product, as a medical device that could be marketed
through potential medical device partners in the United States and internationally.
The Company originally pursued this strategy with the objective of penetrating
sales channels that it believed would have enabled its operating subsidiaries to
generate cash flows sufficient to repay the intercompany loans in the foreseeable
future. The Company believed that, since it had medical device approvals for
products offered to these medical device partners, sales could have ramped up
quickly upon execution of a partnership in Europe or Latin America. At that time,
the Company believed that through such distribution, its operating subsidiaries may
have been in a position to repay their intercompany loans in the foreseeable
future. The Company still intended to pursue, and concurrently did pursue, its
longer term strategy of obtaining Food and Drug Administration, or FDA, approval to
distribute Microcyn as a drug product in the United States. The Company believed
that, on a longer term basis, Microcyn was likely to receive a higher price as a
FDA-approved drug product than it did as a medical device.

    In the third fiscal quarter of 2008, the Company began to re-evaluate the
feasibility of simultaneously pursuing both strategies of marketing Microcyn as a
medical device and seeking FDA drug approval in the United States. The Company was
concerned that selling the product as a medical device would interfere with
attracting a significant pharmaceutical partner. The Company also

    believed that potential pharmaceutical partners in the United States may have
wanted worldwide distribution rights. Most of the more interested parties at that
time were medical device companies in the wound care arena. Accordingly, the
Company began to suspend discussions with potential medical device partners in the
United States and internationally during the fourth fiscal quarter of 2008 because
it believed that, on a long term basis, pharmaceutical partnerships would be more
favorable.

    Furthermore, the Company believes that the timeline for a drug approval in the
United States would require several years of intense clinical activity and focus
with no guarantee of FDA approval. In the opinion of management, repayment of the
loans became highly uncertain as a result of changing the Company’s business
strategy to take the more risky and potentially lucrative approach of pursuing a
drug approval for Microcyn versus marketing and selling products for which the
Company already held the appropriate regulatory approval. With this shift in
strategy coupled with the increasing loan balances and the unpredictability of
completing the drug trial and obtaining partnership agreements, the Company
believes that it is unlikely that the intercompany loans would be settled in the
“foreseeable future” and therefore decided to renegotiate its existing loans so
that each international entity would not be required to repay such amounts in the
foreseeable future. After extensive discussions with local management and review
of local law, the Company completed the new intercompany loan documents. At the
time these loans were renegotiated, the Company recorded this “settlement” in the
statement of operations. The Company considers any future changes in the loan
balances part of its net investment in the foreign entities. Therefore, the
Company believes that gains and losses that arose during the period subsequent to
the renegotiation of this transaction are of a long-term investment nature and
should be included in other comprehensive income.

Form 10-Q for the period Ended September 30, 2008

Condensed Consolidated Statements of Operations, page 4

    Comment 2.

    We refer to the $217,000 loss on disposal of manufacturing
equipment presented as a component of Other Income (Expense),
net in the six month period ended September 30, 2008. We
generally believe that gains and losses resulting from
write-down or sale of assets previously used in operations
should be classified as operating items in the income
statement. This treatment appears consistent with the
guidance prescribed by SFAS 144, as well. Accordingly, in
future filings please classify these items in the operating
section of the income statement, or advise us why you consider
the present classification appropriate.

    Response 2.

    The Company notes the Staff’s position that the appropriate
treatment of a loss realized on disposal of equipment is to
classify the loss as operating expense. The Company will
comply with this guidance in future filings.

Note 1. Organization and Summary of Significant Accounting Policies, page 6

Foreign Currency Reporting, page 6

    Comment 3.

    We note disclosures on page 7 that “Foreign currency transaction gains (losses) relate
primarily to working capital loans that the Company has made to its foreign subsidiaries. The
Company recorded foreign currency transaction gains (losses) of ($60,000) and $809,000 for the
six months ended September 30, 2008 and 2007, respectively. The related gains (losses) were
recorded in other income

    (expense) in the accompanying condensed consolidated statements of
operations. Loans made to subsidiaries OTM and OIS Europe will be paid back to the
Company in the future when the subsidiaries begin to generate cash.” We also noted
disclosures on page 7 that “In accordance with the provisions of SFAS 52, if it is
determined that an intercompany loan will not be repaid in the foreseeable future,
foreign exchange gains and losses related to the translation of the loans from
local currency to U.S. Dollars should be classified as other comprehensive income
and loss. The Company believes that given the inability to foresee settlement of
the loans, it is appropriate to record the exchange gains and losses related to
these loans in other comprehensive income and loss.” Please tell us how
you have presented foreign currency transaction gains (losses) related to working
capital loans that you have made to your foreign subsidiaries in your September 30,
2008 and 2007 financial statements. Revise your disclosures in future filings to
clearly describe how you have presented and accounted for the referenced foreign
currency transactions in your financial statements.

    Response 3.

    The Company notes the Staff’s observation that the disclosure on page 7 of the Form
10-K for the year ended March 31, 2008 is not clear with regard to the treatment of foreign
currency transaction gains and losses in the periods ended September 30, 2008 and 2007. The
Company recorded foreign currency transaction gains and losses in operations during the three
and nine month periods ended September 30, 2008 that relate solely to intercompany
transactions for working capital purposes between Oculus U.S. and its Japanese subsidiary and
intercompany trade transactions involving products between the Company’s subsidiary in Mexico
and its subsidiary in the Netherlands. The Company expects these transactions to be settled
in the foreseeable future and therefore the appropriate accounting treatment under paragraphs
15 and 20 of FAS 52 is to record the transaction gains and losses in the statement of
operations. Conversely, foreign currency transaction gains and losses that the Company
recorded in operations during the three and nine month periods ended September 30, 2007
include the above noted transactions and intercompany financing transactions with the
Company’s subsidiaries in Mexico and the Netherlands which, based on the original terms, the
Company expected would have been settled in the foreseeable future as described in the
Company’s response to the Staff’s comment 1. The Company undertakes to revise its disclosures
in future filings to clearly describe how it has presented and accounted for the referenced
foreign currency transactions in its financial statements.

If you have further questions or comments, please feel free to contact me at (617) 243-0060. We
are happy to cooperate in any way we can.

    Regards,

    /s/  Amy M. Trombly

    Amy M. Trombly