<PAGE>

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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


                                   FORM 10-K

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     [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 or
                                                        -----------------

     [_] Transition Report pursuant to Section 13 or 15 (d) of the
         Securities Exchange Act of 1934 for the transition period from
         _______ to _______

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                        Commission file number 0-28290
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                                  AKSYS, LTD.
            (Exact name of registrant as specified in its charter)
================================================================================

                Delaware                                 36-3890205
       (State or other jurisdiction of                 (I.R.S. Employer
       incorporation or organization)                Identification No.)


     Two Marriott Drive, Lincolnshire, IL                   60069
   (Address of Principal executive offices)               (Zip Code)


Registrant's telephone number, including area code: (847) 229-2020


  Securities registered pursuant to Section 12(b) of the Act: Not applicable


          Securities registered pursuant to Section 12(g) of the Act:

 Common Stock, par value $.01 per share, and related preferred stock purchase
                                    rights
--------------------------------------------------------------------------------
                               (Title of Class)
--------------------------------------------------------------------------------

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.    Yes  x         No ____
                                                 ---

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the 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. [_]

     The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $103,661,000 as of March 19, 2001 based on the
closing sale price of $6.00 as reported by the Nasdaq National Market.

     As of March 19, 2001 the registrant had 18,388,510 shares of Common Stock
issued and outstanding.

                      Documents Incorporated by Reference

     Portions of the Registrant's Proxy Statement to be used in connection with
the solicitation of proxies for the Annual Meeting of Stockholders to be held on
April 26, 2001 (the "Proxy Statement") are incorporated by reference into Part
III and portions of the Registrant's 2000 Annual Report to Stockholders filed
herewith as Exhibit 13 are incorporated by reference into Part II and Part IV.

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<PAGE>

                                  AKSYS, LTD.

                      INDEX TO ANNUAL REPORT ON FORM 10-K

<TABLE>
<CAPTION>
                                                                                                        Page No.
                                                                                                        --------
<S>                                                                                                     <C>
PART I.....................................................................................................1

Item 1.     Business.......................................................................................1
Item 2.     Properties....................................................................................16
Item 3.     Legal Proceedings.............................................................................16
Item 4.     Submission of Matters to a Vote of Security-Holders...........................................16

PART II...................................................................................................17

Item 5.     Market for the Registrant's Common Stock and Related Stockholder Matters......................17
Item 6.     Selected Financial Data.......................................................................17
Item 7.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations.....................................................................18
Item 7A.    Quantitative and Qualitative Disclosures About Market Risk....................................22
Item 8.     Financial Statements and Supplementary Data...................................................22
Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..........22

PART III..................................................................................................22

Item 10.    Directors and Executive Officers of the Registrant............................................22
Item 11.    Executive Compensation........................................................................22
Item 12.    Security Ownership of Certain Beneficial Owners and Management................................22
Item 13.    Certain Relationships and Related Transactions................................................23

PART IV...................................................................................................23

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K...............................23

SIGNATURES................................................................................................24

EXHIBIT INDEX.............................................................................................25
</TABLE>
<PAGE>

PART I

Item 1.  Business

                                  Background

Aksys, Ltd. (the "Company") was founded in 1991 to provide hemodialysis products
and services for patients suffering from end-stage renal disease ("ESRD"),
commonly known as chronic kidney failure. The Company has developed an automated
personal hemodialysis system, known as the Aksys PHD Personal Hemodialysis
System (the "PHD System"), which is designed to enable patients to perform
frequent hemodialysis at alternate sites, such as the patient's home, and to
thereby improve clinical outcomes, reduce total ESRD treatment costs and enhance
the patients' quality of life. All these characteristics have been associated
with frequent hemodialysis.

The Company is currently working toward satisfying the regulatory requirements
for Food and Drug Administration ("FDA") clearance to market the PHD System in
the United States. The Company completed a clinical evaluation of the PHD System
in November 2000. In January 2001, Aksys submitted a 510(k) pre-market
notification for clearance to market the PHD System. 510(k) clearance by the FDA
is required prior to the commercialization of the PHD System in the United
States.

Japan is also a significant market where the Company plans to seek regulatory
approval, although the regulatory approval cycle in Japan is much longer than in
the U.S. On June 21, 1999, the Company entered into a co-development and
licensing agreement with Teijin Limited of Osaka Japan (see "Foreign Operations"
for a description of the agreement). The Company is currently working with
Teijin to jointly develop and eventually commercialize the PHD System in Japan.

There can be no assurance that the Company will be able to obtain any of the
above-mentioned regulatory clearances or approvals in a timely manner or at all.

                                The Marketplace

The target market of the Company is the ESRD treatment market. A healthy human
kidney continuously removes waste products and excess water from the blood. ESRD
is a slow, progressive loss of kidney function caused by inherited disorders,
prolonged medical conditions such as diabetes and hypertension, or the long-term
use of certain medications. ESRD is irreversible and lethal if untreated. Life
can be sustained only through either transplantation or dialysis.
Transplantation is severely limited due to the shortage of suitable donors, the
incidence of organ transplant rejection and the age and health of many ESRD
patients. The vast majority (over 90%) of patients, therefore, must rely on
dialysis for the remainder of their lives.

The Company estimates that over $16 billion was spent in the U.S. during 2000
for the treatment of patients suffering from ESRD, of which more than $5 billion
was directly related to dialysis treatment. Based upon information published by
the Health Care Financing Administration ("HCFA"), the approximate number of
ESRD patients in the United States requiring dialysis treatments has grown from
66,000 at the end of 1982 to an estimated 275,000 at the end of 2000. The
current estimated annual growth rate of ESRD patients in the U.S. is
approximately 6%. In addition, it is estimated that there were approximately
422,000 dialysis patients in Europe and Japan at the end of 2000. The Company
believes that the sustained growth in the ESRD population, especially in the
United States, has been caused by (i) the aging of the population (the median
age of newly diagnosed ESRD patients in the United States is 62), (ii) the
longer average life expectancy of patients with diabetes and hypertension (two
patient groups at high risk for ESRD), (iii) the relatively more rapid growth in
the general population of certain ethnic subsets that have a higher incidence of
ESRD, (iv) competing risk - with the decline in vascular diseases of the heart,
there is a rise in vascular diseases of the kidney and (v) a possible increase
in the use of medications that damage the kidneys.

                                       1
<PAGE>

Given the expense of kidney dialysis treatments and the lack of effective
alternative therapies, in 1972 Congress enacted legislation providing for
Medicare funding for all eligible patients with ESRD regardless of age or
financial circumstances.

Under this program, after the first 30 months of treatment Medicare is
responsible for payment of 80% of the rate set by HCFA for reimbursement of
outpatient dialysis. Although this program made dialysis available to virtually
all patients in need of treatment, the cost of funding the program grew rapidly,
quickly exceeding original expectations. In an effort to hold down these costs,
Congress, in 1983, capped the Medicare reimbursement rate for outpatient
dialysis at approximately $20,000 per patient per year. The costs of operating
dialysis centers, however, such as capital, labor and facility overhead, have
continued to rise. These circumstances have forced dialysis providers to seek
ways to reduce dialysis treatment costs. For example, certain dialysis providers
may be shortening dialysis treatments, reusing medical equipment and supplies
intended for a single use and shifting the responsibilities of doctors and
nurses to employees with less training.

                                 Reimbursement

Demand for the Company's products and services will be influenced by
governmental and other third-party reimbursement programs because providers of
ESRD treatment are reimbursed by Medicare, Medicaid and private insurers.

Medicare Reimbursement

Medicare generally provides health insurance coverage for persons who are age 65
or older and for persons who are completely disabled. Medicare also provides
coverage for other eligible patients, regardless of age, who have been medically
determined to have ESRD. For patients eligible for Medicare based solely on ESRD
(generally patients under age 65), Medicare eligibility begins three months
after the month in which the patient begins dialysis treatments. During this
three-month waiting period, either Medicaid, private insurance or the patient is
responsible for payment for dialysis services. This waiting period is waived for
individuals who participate in a self-care dialysis training program, or are
hospitalized for a kidney transplant and the surgery occurs within a specified
time period.

For ESRD patients under age 65 who have any employer group health insurance
coverage (regardless of the size of the employer or the individual's employment
status), Medicare coverage is generally secondary to the employer coverage
during a 30-month coordination period that follows the establishment of Medicare
eligibility or entitlement based on ESRD. During the coordination period, an
employer group health plan is responsible for paying primary benefits at the
rate specified in the plan, which may be a negotiated rate or the healthcare
provider's usual and customary rate. As the secondary payer during this
coordination period, Medicare will make payments up to the applicable composite
rate for dialysis services to supplement any primary payments by the employer
group health plan if the plan covers the services but pays only a portion of the
charge for the services.

Medicare generally is the primary payer for ESRD patients after the 30-month
coordination period. Under current rules, Medicare is also the primary payer for
ESRD patients during the 30-month coordination period if, before becoming
eligible for Medicare on the basis of ESRD, the patient was already age 65 or
over (or eligible for Medicare based on disability) unless covered by an
employer group health plan (other than a "small" employer plan) because of
current employment. This rule eliminates for many dual-eligible beneficiaries
the 30-month coordination period during which the employer plan would serve as
primary payer and reimburse health care providers at a rate that the Company
believes may be higher than the Medicare composite rate. The rules regarding
entitlement to primary Medicare coverage when the patient is eligible for
Medicare on the basis of both age (or disability) and ESRD have been the subject
of frequent legislative and regulatory changes in recent years and there can be
no assurance that such rules will not be unfavorably changed in the future.

                                       2
<PAGE>

When Medicare is the primary payer, it reimburses 80% of the composite rate set
by the Medicare prospective reimbursement system for each dialysis treatment.
The beneficiary is responsible for the remaining 20%, as well as any unmet
Medicare deductible amount, although an approved Medicare supplement insurance
policy, other private health insurance or Medicaid may pay on the beneficiary's
behalf. Reimbursement rates are subject to periodic adjustment based on certain
factors, including budget and other legislation and costs incurred in rendering
the services if tied to certain criteria. The composite reimbursement rate was
unchanged from commencement of the program in 1972 until 1983. From 1983 through
December 1990, numerous Congressional actions resulted in net reductions of the
average composite reimbursement rate from a fixed fee of $138 per treatment in
1983 to approximately $125 per treatment in December 1990. Effective January 1,
1991, Congress increased the ESRD composite reimbursement rate, resulting in an
average rate of $126 per treatment. The Balanced Budget Refinement Act of 1999
raised the composite rate by 1.2% in 2000 and an additional 1.2% in 2001.

Reimbursement for home dialysis can be made in two ways. A beneficiary may
choose to receive home dialysis equipment, supplies and support services
directly from a facility or to make independent arrangements for equipment and
supplies. If the beneficiary chooses to use a facility, the facility receives
the composite rate for each treatment the patient performs at home. If the
beneficiary chooses to make independent arrangements, the supplier bills
Medicare on an assignment basis and payment is made at a rate not greater than
the composite rate, with the exception of continuous cycling peritoneal dialysis
("CCPD"). There is a monthly payment cap of $2,080 for CCPD and approximately
$1,600 for all other methods of home dialysis.

The Medicare ESRD composite reimbursement rate has been the subject of a number
of reports and studies. Actions to change such rate usually occur in the context
of federal budget negotiations.

The Company is unable to predict what, if any, future changes may occur in the
Medicare composite reimbursement rate or in any other reimbursement program. Any
reductions in the Medicare composite reimbursement rate or in any other
reimbursement program could have a material adverse effect on the Company's
prospects, revenues and earnings. In addition, there have been various
legislative proposals for the reform of numerous aspects of Medicare, the
occurrence and effect of which are uncertain. See "--Potential Health Care
Legislation" below.

Medicaid Reimbursement

Medicaid programs are state-administered programs partially funded by the
federal government. These programs are intended to provide coverage for patients
whose income and assets fall below state defined levels and who are otherwise
uninsured. The programs also serve as supplemental insurance programs for the
Medicare co-insurance portion and provide certain coverage (e.g., oral
medications) that are not covered by Medicare. State regulations generally
follow Medicare reimbursement levels and coverage without any co-insurance
amounts. Certain states, however, require beneficiaries to pay a monthly share
of the cost based upon levels of income or assets.

                                       3
<PAGE>

Private Reimbursement

Some ESRD patients have private insurance that covers dialysis services. As
discussed above, health care providers receive reimbursement for ESRD treatments
from the patient or private insurance during a "waiting period" up to three
months before the patient becomes eligible for Medicare. In addition, if the
private payer is an employer group health plan, it is generally required to
continue to make primary payments for dialysis services during the 30-month
period following eligibility or entitlement to Medicare. In general, employers
may not reduce coverage or otherwise discriminate against ESRD patients by
taking into account the patient's eligibility or entitlement to Medicare
benefits.

The Company believes that before Medicare primary coverage is established,
private payers may reimburse dialysis expenses at rates higher than the per-
treatment composite rate set by Medicare. When Medicare becomes a patient's
primary payer, private insurance often covers the per-treatment 20% coinsurance
that Medicare does not pay.

Potential Health Care Legislation

Because the Medicare program represents a substantial portion of the federal
budget, Congress takes action in almost every legislative session to modify the
Medicare program for the purpose of reducing the amounts otherwise payable by
the program to health care providers in order to achieve deficit reduction
targets or meet other political goals. Legislation and/or regulations may be
enacted in the future that may significantly modify the Medicare or Medicaid
ESRD programs or substantially affect reimbursement for dialysis services.

                         Prevailing Treatment Methods

Hemodialysis and peritoneal dialysis are the two prevailing methods of dialysis.

Hemodialysis

HCFA estimates that as of December 31, 1999, approximately 89% (231,000) of the
ESRD dialysis patients in the United States were receiving hemodialysis. Fewer
than 1% of these patients performed treatment in their homes, and all others
received treatment at outpatient facilities. Outpatient hemodialysis requires
that a patient travel to a dialysis clinic three times per week for dialysis
sessions lasting three to four hours. In each session, the patient's blood is
cleansed by circulation through an artificial kidney controlled by a dialysis
machine.

Home hemodialysis was common practice prior to Medicare funding, with
approximately 42% of the 11,000 United States dialysis patients on home
hemodialysis in 1973. Although the initial motivation for performing home
treatment for many patients reflected the lack of availability of dialysis
clinics and the desire to reduce the cost of hospital-based dialysis, clinicians
report that many of these patients found significant advantages in quality of
life when treating themselves at home. As Medicare funding became available,
however, the vast majority of patients began receiving treatment in outpatient
facilities, and hemodialysis machines became more complex and sophisticated as
they evolved for use in clinics. The dialysis machines currently used in these
centers are predominantly operated by trained personnel and require significant
manual preparation and cleaning in connection with each treatment session.

Peritoneal Dialysis

HCFA estimates that as of December 31, 1999, approximately 11% (27,000) of the
ESRD dialysis patients in the United States were receiving peritoneal dialysis,
with over 99% performing such treatment in their homes. There are two principal
forms of peritoneal dialysis, and all forms use the patient's peritoneum, a
large membrane rich in blood vessels that surrounds many of the body's internal
organs, as a filter to eliminate toxins and excess fluids from the patient's
blood. Dialysate, a blood-cleansing electrolyte solution, is infused through a
catheter into the patient's peritoneal cavity. Once this fluid absorbs the
toxins and excess water that are filtered from the blood

                                       4
<PAGE>

through the peritoneum, it is drained from the peritoneal cavity through a
catheter. In the most common form of peritoneal dialysis, Continuous Ambulatory
Peritoneal Dialysis ("CAPD"), the process of exchanging dialysate into and out
of the patient's peritoneal cavity occurs four times daily, seven days per week.
The other form, Continuous Cycling Peritoneal Dialysis ("CCPD"), uses an
instrument to automatically perform exchanges of solution through the peritoneal
cavity overnight, while the patient sleeps. Both forms of treatment require
strict aseptic technique.

Limitations of Prevailing Treatment Methods

Hemodialysis. Patients receiving outpatient hemodialysis often experience a
number of chronic and acute health problems. The chronic problems include
hypertension, anemia (low red blood cell count), malnutrition, fluid and
electrolyte imbalance, calcium deficiency, insomnia, sexual impotency, decreased
mental acuity and lower energy levels. The acute problems include headaches,
nausea, hypotension and asthenia (a general lack of strength and vitality),
which are associated with thrice weekly dialysis sessions. In addition, a
general feeling of ill health tends to increase between dialysis treatments as a
result of toxins, sodium and water building up in the patient's blood. These
side effects have a significant impact on (i) clinical outcomes, with the
leading cause of death among ESRD patients being cardiovascular disease, which
many clinicians believe is caused in large part by oscillations in toxins,
sodium and body fluid levels, (ii) total patient costs, resulting from the
frequent need to hospitalize ESRD patients as well as the need to treat anemia
and hypertension with medication and (iii) patient quality of life, with
patients having to not only suffer through these chronic and acute health
problems and related "hangover" frequently following each treatment, but also to
essentially devote three days per week to the treatment regimen.

The Company believes that these health problems are caused in part by inadequate
doses and frequency of dialysis. The amount of toxins removed from the blood
during dialysis is widely accepted to be determined by a formula indicating that
hemodialysis is most efficient in the earlier stages of therapy. Thus, simply
increasing the duration of a treatment session is not the most efficient way to
improve the dose of hemodialysis. Rather, the efficiency of hemodialysis and the
delivered dose can be improved with more frequent dialysis sessions of shorter
duration. More frequent sessions also decrease the severe oscillations in toxin
and hydration levels associated with the prevailing three times per week
dialysis regimen and should result in fewer side effects.

The clinical outcomes of conventional dialysis have contributed to the
significant patient treatment cost. According to HCFA, total treatment costs per
dialysis patient have risen from $33,400 in 1988 to $63,000 in 1998. The cost of
hospitalization on a fee for service basis represents the most significant
component of this increase. While reimbursement for outpatient hemodialysis
treatment (the "composite rate") has been capped since 1983, reimbursement for
the associated cost of care due to chronic and acute health problems and other
complications continues to be reimbursed on a fee for service basis. Under this
reimbursement scheme, providers have an incentive to reduce the cost of
outpatient dialysis rather than the total cost of treating dialysis patients.

Peritoneal Dialysis. Although peritoneal dialysis accounted for 11% (or 27,000)
of the dialysis patient population in 1999 according to HCFA, approximately 22%
(or 6,000) of the patients in the United States switched to outpatient in-center
hemodialysis. The Company believes that most of these patients switched from
peritoneal dialysis to outpatient hemodialysis because of the following
limitations presented by CAPD, the most common form of peritoneal dialysis: (i)
due to the limited efficiency of using the peritoneal membrane as a filter for
toxin removal, patients must have a relatively low body weight or have some
residual kidney function to achieve adequate levels of dialysis (once residual
kidney function is lost, which is eventually the case in most patients, CAPD is
no longer a viable treatment for a majority of the population); (ii) CAPD
demands considerable responsibility and time to perform the required four
exchanges of solution each day, which often causes patient "burnout" and non-

                                       5
<PAGE>

compliance with the prescribed regimen; (iii) peritoneal dialysis demands that
patients follow strict aseptic techniques when changing dialysate bags because
the failure to do so often leads to peritonitis, an infection of the peritoneum;
and (iv) the supplies used in peritoneal dialysis require considerable storage
space given the quantity of dialysate (up to 30 large boxes per month) used in
this treatment.

The Company believes that most new peritoneal dialysis patients choose CCPD, in
part, in an attempt to improve clinical outcomes. Although CCPD addresses some
of the limitations imposed by CAPD, it continues to present a risk of infection
of the peritoneum and in many cases requires some residual kidney function to
achieve adequate levels of dialysis. Moreover, because CCPD must often be
supplemented with peritoneal dialysis performed by the patients during the day
using the CAPD method, patient "burnout" also occurs.

Home Hemodialysis as an Alternative

The Company believes that increasing the frequency of hemodialysis treatments
while decreasing the length of each treatment session can significantly improve
clinical outcomes and patient quality of life while reducing the total cost of
managing ESRD patients. The Company completed a clinical trial of the PHD System
in November 2000, whereby a total of 23 patients converted from three times per
week dialysis at home to a treatment regimen of more frequent dialysis on the
PHD System. Those clinical trial patients dialyzed over 2,600 times on the PHD
System, including over 2,100 times at home. Patients showed better clinical
outcomes and improved quality of life on more frequent dialysis.

Several other studies over the past 32 years indicate that increasing the number
of dialysis treatments per week leads to dramatic improvements in patients.
Several study centers report that most of the ESRD patients who performed
hemodialysis on a daily basis reported that daily hemodialysis gave them a more
positive attitude toward treatment and a higher quality of life. Neither the
Company nor the PHD System was involved in the treatments received by patients
in these other studies and the Company did not fund these studies. Moreover,
patient selection for these studies was not randomized; the Company gathered the
data on a retrospective basis from providers that it knew were treating patients
with a daily hemodialysis regimen. Consequently there can be no assurance that
the patient populations in these studies are representative of the general ESRD
patient population. As a result, these studies should not be deemed to have
established the impact of daily hemodialysis on clinical outcomes.

In addition to the aforementioned retrospective studies, daily hemodialysis is
gaining popularity. There are initiatives in the U.S. and worldwide to study the
benefits of daily hemodialysis. The Company estimates that in early 2001, there
are 40 centers worldwide, 20 of which are in North America, treating over 400
patients with daily hemodialysis.

Despite the potential benefits of frequent hemodialysis, several barriers have
prevented it from becoming a viable treatment regimen. The most significant is
the economic implication of administering more frequent hemodialysis to patients
from the traditional three times per week dialysis. Under the current capped
Medicare reimbursement level, dialysis providers cannot afford the additional
costs that would be incurred in providing more frequent treatments in outpatient
facilities. Requiring more frequent visits to a dialysis treatment facility
would also place additional burdens on a patient's lifestyle.

There is also a perception that vascular access complications arising from
inserting the needles into the patient's blood access site may increase with
daily treatment sessions. These complications are common in the clinical setting
already and account for a significant portion of the cost of treating patients.
Although the Company believes that vascular access complications should not
increase with more frequent hemodialysis sessions in a home or self-care setting
and such complications may in fact decrease, that belief is based on data
collected from patients using a native fistula. The Company has collected little
data from patients using artificial blood vessel grafts or central venous
catheters, and there is no assurance that such grafts or catheters will
withstand daily treatment. There are a number of approaches to vascular access
that may enhance more frequent treatments, including (i) the use of "single
needle" vascular access devices which reduce the number of punctures by half,
(ii) the use of central venous catheters which eliminate the need to use needles
at all, (iii) novel graft materials, (iv) new, totally implanted central

                                       6
<PAGE>

venous catheters with titanium ports and (v) the practice of inserting needles
in the same site each day, which has been demonstrated to have several benefits
according to publications by Dr. Zbylut J. Twardowski, a leading dialysis
researcher.

The Company believes that most barriers to a more frequent hemodialysis regimen
could be overcome if it were available in the patient's home, but to date no
hemodialysis device has become sufficiently available to establish home
hemodialysis as a feasible alternative therapy for the general dialysis patient
population.

                              Product Development

The Aksys PHD System

By addressing the many drawbacks of conventional hemodialysis systems, which
have prevented the widespread use of daily home hemodialysis, the Company
believes its products and services can be instrumental in improving clinical
outcomes, decreasing the total treatment costs and improving quality of life for
dialysis patients. The following chart describes how the PHD System addresses
the drawbacks presented when ESRD patients and helpers use conventional systems
for home hemodialysis:

<TABLE>
<CAPTION>
        Drawback                Conventional Home Systems                        Aksys PHD System
<S>                       <C>                                         <C>

Complexity                Complicated equipment designed for          Designed for ease of operation at home,
                          operation only by trained personnel.        including computerized, user-friendly
                                                                      interface.


Time and Effort           Difficult and time consuming to setup,      Fully automated, reducing operator
                          operate, clean and maintain.                involvement.


Cost of Consumables       Requires frequent replacement of blood      Integrated automatic disinfection system
                          circuit.                                    designed to enable safe and effective reuse
                                                                      of blood circuit.

Storage Requirements      Large volume of consumables and             Substantially fewer and smaller items
                          dialysate consumed each month.              consumed with each treatment.
</TABLE>

Although the most common form of peritoneal dialysis, CAPD, does not require a
dialysis machine, as discussed above, peritoneal dialysis has inherent
limitations. The Company believes that the PHD System addresses the primary
drawbacks of both forms of peritoneal dialysis by delivering a substantially
greater dose of dialysis in significantly less time. Furthermore, by enabling
the use of frequent home hemodialysis, the PHD System overcomes other
limitations of peritoneal dialysis such as the risk of peritonitis and patient
non-compliance to the prescribed regimen.

The Company believes that the PHD System offers patients simplification and
control. The new technology of the PHD System integrates three systems into one:
water purification, delivery of dialysis and dialyzer reprocessing. The PHD
System is a fully automated personal dialysis instrument designed to enable
operators to perform hemodialysis in a self-care setting, such as the patient's
home, on a frequent or daily basis. The PHD System is designed to reduce the
patient's time and effort involved in performing each hemodialysis treatment
with minimal assistance. Through a touch sensitive display screen with
instructions available on a graphic video display, the PHD System is designed to
be less intimidating and easier to use than current hemodialysis systems.

The PHD System is designed to evaluate the performance of the artificial kidney
in removing toxins from the patient's blood prior to each treatment to ensure
that the prescribed dose of hemodialysis is achieved during the

                                       7
<PAGE>

treatment. The PHD System also automatically evaluates the water treatment
filters and indicates whether a replacement is required and verifies that all
critical safety systems, sensors and alarms are operating correctly.

To begin a treatment session on the PHD System, the operator connects the blood
tubing to the vascular access device. A user-friendly, touch-sensitive monitor
prompts the patient through the treatment and displays procedure and patient-
specific information for review. The PHD System is designed to monitor during
the treatment a variety of vital statistics, including the patient's blood flow
rate, the amount of water removed from the patient, the length of the treatment
session and other key parameters. The treatment can be suspended at any time by
the patient. If the patient's blood pressure drops below normal levels during
the treatment, the system prompts the patient to take appropriate action. Data
from a hemodialysis treatment is displayed for viewing by the patient.

At the end of a treatment session, the operator reconnects the blood tubing to
the system and inserts two small bottles of dialysate in the system to replace
those consumed for the previous treatment. The PHD System then automatically
flushes and disinfects all fluid pathways, performs a self-diagnostic test to
determine whether the disinfection was adequate and readies itself without
further patient involvement for the next treatment session.

Services Supporting the PHD System

To fully service hemodialysis patients, the Company intends to develop a service
network to provide support for patients and dialysis providers in all aspects
relating to the use and maintenance of the PHD System. The Company expects this
service network will provide: (i) delivery and installation of the PHD System
(including arranging for any minor changes to plumbing and electrical circuits
in the patient's home, or other self-care setting, that will be necessary for
operation of the PHD System), (ii) technical service through a 24 hour call
center and through field representatives who will maintain and repair all
components of the PHD System, (iii) delivery of consumables used in dialysis
such as the artificial kidney and arterial and venous blood tubing (which are
replaced periodically), water purification components and dialysate concentrate,
(iv) delivery of ancillary supplies such as dressings, tape, antiseptics, drugs
and syringes and (v) customer service representatives who will interface with
the dialysis provider to address the status of, and any necessary changes in,
the patient's treatment made by the dialysis provider. The Company believes that
by providing all of the products and services necessary to perform hemodialysis
at home as well as in other self-care settings and nursing homes, the Company
can establish and maintain loyalty with patients and dialysis providers.

The PHD System is intended to reduce total treatment costs for ESRD patients,
including hospitalization costs. There is no reliable way at this time, however,
to quantify the potential savings in total treatment cost. The Company expects
that the PHD System will be priced at a level to fit within current
reimbursement guidelines. Thus, the Company expects there will be little or no
reduction in dialysis cost (as opposed to total treatment costs) associated with
the PHD System.

Although the Company believes that the PHD System provides a solution to many of
the problems presented by conventional dialysis modalities, there are a number
of risks that must be overcome for the PHD System to succeed, including the
uncertainty of obtaining regulatory clearance or approval and of achieving
market acceptance and development.

                                       8
<PAGE>

Other Product Development

During 2001, the Company expects that substantially all of its resources,
including available cash and short-term investments, will be devoted to the
regulatory approval process and commercialization activities of the PHD System.
As the Company nears the stage of commercial production, resources will continue
to be devoted to additional features, service and support of the PHD System. At
that time, resources will also be directed toward using the platform technology
incorporated in the PHD System to develop follow-on products.

                        Business and Marketing Strategy

In October 1997, the National Kidney Foundation released the results of the
first comprehensive effort to standardize practices at U.S. dialysis centers
(the Dialysis Outcomes Quality Initiative, or DOQI guidelines). The
recommendations called for minimum doses of dialysis; however, approximately 32%
of all current U.S. patients are under that recommended minimum dosage. These
recommendations support the Company's belief that patients who receive that
higher dose through daily dialysis would benefit through improved clinical
outcomes. The Company believes that the PHD System offers the potential for
better clinical outcomes, lower total treatment costs and improved quality of
life for dialysis patients. The relatively poor patient outcomes resulting from
current dialysis treatment methods and the increasing total cost of treating
ESRD patients have created significant demand for improved dialysis systems.
Through the PHD System, the Company intends to capitalize on this demand by
pursuing the following strategies.

Target Specific Market Segments. The Company intends to market its products and
services directly to those providers of dialysis services most focused on
patient outcomes and total cost of care. This strategy is designed to achieve
access to the key patient segments which the Company believes will be especially
receptive to frequent home hemodialysis using the PHD System, including: (i)
dialysis patients currently receiving conventional home hemodialysis, (ii)
dialysis patients who drop out of home peritoneal dialysis and (iii) ESRD
patients who are just beginning dialysis treatment. In the United States, these
segments accounted for approximately 2,000, 6,000 and 94,000 dialysis patients,
respectively, in 1999 according to industry data. Although the PHD System has
been designed primarily for home use, the Company believes it will also be an
attractive alternative dialysis device for self-care clinics and nursing homes.

Provide a Broad Range of Dialysis Products and Services. The Company intends to
provide a broad range of products and services for hemodialysis patients and
providers. In addition to the delivery, installation and maintenance of the PHD
System, the Company intends to provide training, technical support and delivery
of all required consumables. The Company intends to sell the instruments to the
customers or to a third party lease company, and enter into contracts with its
customers to provide all consumables and services for a single monthly price.

Capture and Provide Outcome Data. The PHD System has a built-in computer capable
of recording specific medical data regarding dialysis treatment and patient
health and compliance. Future versions of the PHD System may allow outcome data
to be furnished on-line to the healthcare provider responsible for treating the
patient and will aid the provider in assessing the effectiveness of the
patient's dialysis treatment prescription as well as promote the potential
clinical and cost benefits of frequent home hemodialysis. Outcome data should
become increasingly important if, as the Company believes, HCFA moves towards a
reimbursement system that capitates total ESRD patient cost.

Implement Programs to Demonstrate Clinical Benefits and Cost-Effectiveness. The
Company intends to complement its marketing by conducting clinical studies and
implementing other measures designed to document the clinical and cost benefits
it believes will result from frequent home hemodialysis using the PHD System. In
1998, the Company sponsored a study at six centers to measure the early
improvements in nutrition and well-being of patients converting from the
standard thrice-weekly hemodialysis regimen to a daily hemodialysis regimen.
Results of the study indicated dramatic improvements in the patients' feeling of
well-being after converting to a regimen of daily hemodialysis.

                                       9
<PAGE>

In collaboration with members of the Company's Scientific Advisory Board and
other leading nephrologists, the Company intends to promote the benefits of the
PHD System through publication in clinical journals and presentations at
scientific conferences of the results of these studies.

Phased Domestic and International Market Launch. The Company believes that there
is worldwide demand for a cost effective, more clinically effective approach to
dialysis. In addition to pursuing market launch in the United States, the
Company is establishing marketing and regulatory resources in Europe, Japan and
elsewhere. As of December 31, 2000, the Company estimates that there were
approximately 202,000 dialysis patients in Europe and 220,000 dialysis patients
in Japan.

Sales and Marketing

The Company initially intends to operate with a relatively small direct sales
force to market its products and services, primarily to healthcare providers
such as hospitals, dialysis clinics, managed care organizations and nephrology
physician groups. The Company intends to distribute and provide technical
support for the PHD System through a combination of in-house resources and
contracted third parties.

                          Manufacturing and Suppliers

The Company does not intend to initially manufacture any component of the PHD
System or related consumables. With respect to the PHD System, the Company has
contracted with Peak Industries, Inc. ("Peak"), a contract manufacturer of
medical devices, to assemble and produce the dialysis machine. The Company has
entered into an agreement with Peak that remains in effect through February 28,
2003, subject to earlier termination under specified circumstances. Peak
specializes in the custom manufacturing of medical instrumentation and is
certified to ISO requirements for manufacture of such products. ISO
Certification is an internationally recognized standard of quality
manufacturing. The Company intends to identify additional manufacturing
locations in the future, whether or not owned by Peak, to avoid having to rely
on a single location. There can be no assurances that the Company will be able
to do so on terms acceptable to it. The manufacturing of the Company's products
is subject to quality system regulations ("QSR") and other requirements
prescribed by regulatory agencies. There can be no assurance that Peak or any
other manufacturer of the Company's products will continue to comply with
applicable regulatory requirements or that Peak or any such manufacturer will be
able to supply the Company with such products in sufficient quantity or at all.

Certain key components of the PHD System, such as the dialyzer, are available
from other manufacturers. The blood tubing set, however, is custom made to the
Company's specifications by a single supplier. Similarly, the dialysate
chemicals supplied to patients using the PHD System will be custom made and
packaged to the Company's specifications. The Company is currently working with
a leading manufacturer of dialysis products to provide the Company's needed
dialysate chemicals. There can be no assurances, however, that any of the key
components of the Company's products, including dialyzers produced by other
manufacturers, will be available on terms acceptable to the Company or at all.

                           Research and Development

As of December 31, 2000, the Company employed a research and development staff
of 82 full time employees, most of whom are engineers and technicians. In
addition, the Company used contractors on an as needed basis to assist in its
development process. The research and development staff is composed of
specialists in the fields of mechanical engineering, electrical engineering,
software engineering, biomedical and systems engineering, chemistry and
microbiology. For the years ended December 31, 2000, 1999 and 1998, the Company
incurred total research and development expenditures of approximately
$14,542,000, $15,910,000 and $15,343,000, respectively.

                                       10
<PAGE>

                                  Competition

The Company expects to compete in the kidney dialysis market with suppliers of
hemodialysis and peritoneal dialysis devices, supplies and services. The Company
does not intend to compete with providers of dialysis services such as the
national dialysis providers or managed care companies. Rather, it intends to
market its products and services to these providers and to work with them to
make home hemodialysis a viable alternative to currently available treatment
methods.

The Company's primary competitors in supplying dialysis equipment, supplies and
services are expected to be Baxter International Inc., Fresenius Medical Care AG
and CGH Medical, Inc. (Cobe, Gambro, Hospal). These companies and most of the
Company's other potential competitors have substantially greater financial,
scientific and technical resources, research and development capabilities,
marketing and manufacturing resources and experience than the Company and
greater experience in developing products, providing services and obtaining
regulatory approvals.

The Company's ability to successfully market its products and services could be
adversely affected by pharmacological and technological advances in preventing
the progression of ESRD in high-risk patients (such as those with diabetes and
hypertension), technological developments by others in the area of dialysis, the
development of new medications designed to reduce the incidence of kidney
transplant rejection and progress in using kidneys harvested from genetically-
engineered animals as a source of transplants. There can be no assurance that
competitive pressure or pharmacological or technological advancements will not
have a material adverse effect on the Company.

The Company believes that competition in the market for kidney dialysis
equipment, supplies and services is based primarily on clinical outcomes, price,
product performance, cost-effectiveness, reliability and technological
innovation and that such competition in the home hemodialysis market will be
based on such factors as well as on products being relatively easy to use,
transport and maintain. Certain kidney dialysis equipment manufacturers and
service providers currently own and operate, or may in the future acquire,
dialysis treatment facilities and other providers. As a result, the Company's
ability to sell its products and services to such providers may be adversely
affected.

                             Government Regulation

Food and Drug Administration

The PHD System is regulated as a medical device by the FDA under the Federal
Food, Drug and Cosmetic Act (the "FDC Act"). Pursuant to the FDC Act, the FDA
regulates the manufacture and distribution of medical devices in the United
States. Noncompliance with applicable requirements can result, among other
things, in fines, injunctions and civil penalties; recall or seizure of
products; total or partial suspension of production; denial or withdrawal of
pre-market clearance or approval of devices; recommendations by the FDA that the
Company not be allowed to enter into government contracts; and criminal
prosecution. The FDA also has authority to require repair, replacement or refund
of the cost of any device illegally manufactured or distributed by the Company.

In the United States, medical devices are classified into one of three classes
(Class I, II or III) on the basis of the controls deemed necessary by the FDA to
reasonably ensure their safety and effectiveness. Class I devices are subject to
general controls (e.g., labeling and adherence to some of the QSRs). Class II
devices are subject to general and special controls (e.g., performance
standards, post-market surveillance and patient registries). Class III devices
are those which must receive pre-market approval by the FDA to ensure their
safety and effectiveness (e.g., life-sustaining, life-supporting and implantable
devices or new devices which have been found not to be substantially equivalent
to legally marketed devices).

                                       11
<PAGE>
The PHD System is classified as a Class II device. On March 30, 1999, the
Company filed an Investigational Device Exemption ("IDE") with the FDA, a
prerequisite for conducting a clinical evaluation of the PHD System. The Company
received full IDE approval in July 1999, and in September 1999 began the
clinical trial of the PHD System. 25 patients participated in the trial at three
centers. The protocol for the study called for patients to dialyze at home on
existing hemodialysis equipment for 10 weeks, followed by one month in the
center on the PHD System and two months at home on the PHD System. The clinical
trial was completed in November 2000, with 23 patients receiving dialysis on the
PHD System. Over 2,600 dialysis treatments were performed by patients on the PHD
System, including over 2,100 in the home.

The Company submitted a 510(k) pre-market notification for clearance of the PHD
System on January 16, 2001, which included the results of its clinical trial. As
of March 26, 2001, the Company has not received a response to the submission
from the FDA.

The 510(k) clearance process is lengthy and uncertain and requires substantial
commitments of the Company's financial resources and management's time and
effort. Significant unforeseen delays in the process could occur as a result of
changes in established review guidelines, regulations or administrative
interpretations or determinations by the FDA that clinical data collected is
insufficient to support the safety and effectiveness of one or more of the
devices for their intended uses or that the data warrants the continuation of
clinical studies. Delays in obtaining, or failure to obtain, requisite
regulatory approvals or clearances in the United States and other countries
would prevent the marketing of the PHD System and impair the Company's ability
to generate funds from operations, which in turn would have a material adverse
effect on the Company's business, financial condition, and results of
operations.

The FDC Act requires that medical devices be manufactured in accordance with the
FDA's current QSRs. These regulations require, among other things, that (i) the
manufacturing process must be regulated and controlled by the use of written
procedures and (ii) the ability to produce devices which meet the manufacturer's
specifications be validated by extensive and detailed testing of every aspect of
the process. They also require investigation of any deficiencies in the
manufacturing process or in the products produced and detailed record keeping.
Manufacturing facilities are therefore subject to FDA inspection on a periodic
basis to monitor compliance with QSR requirements. If violations of the
applicable regulations are noted during FDA inspections of the Company's
manufacturing facilities or the manufacturing facilities of its contract
manufacturers, there may be a material adverse effect on the continued marketing
of the Company's products.

Before the FDA clears a Section 510(k) submission, the FDA may inspect the
utilized manufacturing facilities and processes for compliance with QSRs. Even
after the FDA has cleared a 510(k) submission, it will periodically inspect the
manufacturing facilities and processes for compliance with QSRs. In addition, in
the event that additional manufacturing sites are added or manufacturing
processes are changed, such new facilities and processes are also subject to FDA
inspection for compliance with QSRs. The processes that will be used to
manufacture the Company's products have not yet been inspected by the FDA for
compliance with QSRs. There is no assurance that the facilities and processes
utilized by the Company will comply with QSRs and there is a risk that clearance
or approval will, therefore, be delayed by the FDA until such compliance is
achieved.

Foreign Government Regulation

The Company plans to market the PHD System in several foreign markets, including
Japan and Europe. Requirements pertaining to the PHD System vary widely from
country to country, ranging from no health regulations to detailed submissions
such as those required by the FDA. The Company believes the extent and
complexity of regulations of medical devices such as the PHD System is
increasing worldwide. The Company anticipates that this trend will continue and
that the cost and time required to obtain approval to market in any given
country will increase, with no assurance that such approval will be obtained.
The ability to export into other countries may require compliance with ISO 9000,
which is analogous to compliance with the FDA's QSR requirements. The Company
has not obtained any regulatory approvals to market the PHD System outside of
the United States.

                                       12
<PAGE>

                             Intellectual Property

As of March 1, 2001, the Company either owns or has exclusive rights to 39 U.S.
patents and 17 foreign patents for technologies that are important to developing
a safe, convenient, self-contained hemodialysis system. The U.S. Patent and
Trademark Office has also allowed claims on 10 additional patents. The Company
has filed a number of additional patent applications directed to a number of
different features of the PHD System in the United States, and in several other
countries that have significant hemodialysis markets. The Company has also filed
a Patent Cooperation Treaty ("PCT") patent application that permits it to file
patent applications in additional PCT-member countries for a limited period of
time. The Company expects to file additional patent applications in the United
States directed to the PHD System as new technology is developed.

Twardowski License. On April 1, 1993, the Company entered into a License
Agreement (the "Twardowski License") with Dr. Zbylut Twardowski, a member of the
Company's Scientific Advisory Board, granting to the Company a worldwide
exclusive license which relates to the patent issued on August 9, 1994 entitled
"Artificial Kidney for Frequent (Daily) Hemodialysis" which expires August 9,
2011 (the "Twardowski Patent"). The Twardowski Patent relates to an artificial
kidney intended to provide frequent (daily) home hemodialysis. The Twardowski
License has a duration for as long as the Twardowski Patent remains in effect.
The Twardowski License provides for royalties based on the revenue received by
the Company from the sale or lease of the licensed product. The Twardowski
License requires certain minimum semiannual royalty payments. If the Company
fails to make any such minimum royalty payment, Twardowski has the option to
convert the Twardowski License to a non-exclusive license. There can be no
assurance that the Twardowski Patent will provide the Company significant
exclusivity or benefit in its markets. Furthermore, competitors may develop
alternative technology that achieves the same advantages as the Twardowski
Patent.

Boag License. On April 1, 1993, the Company also entered into a License
Agreement (the "Boag License") with Cynthia P. Walters for the use of a patent
entitled "Dialyzer Reuse System" issued on September 22, 1987, which expires
September 22, 2004 (the "Boag Patent"). The Boag License is exclusive subject to
the rights of Servall Corp. to market its HR3000 product, a device for
facilitating reuse of consumables with conventional hemodialysis machines. The
Boag Patent relates to a dialysis reuse system for cleaning, sterilizing and
testing a hemodialysis machine and its associated dialyzer and blood tubing set.
The Boag License has a duration for as long as the Boag Patent remains in
effect. The Boag License provides for royalties based on the revenue received by
the Company from the sale or lease of the licensed product with a minimum
semiannual royalty payment. Commencing with the third semiannual period after
the first licensed product is sold, if the Company pays no more than the minimum
semiannual royalty payment for two consecutive semiannual periods, the licensor
has the right to convert the Boag License to a non-exclusive license. Also,
commencing with the first semiannual period occurring five years after the first
licensed product is sold, if the Company pays no more than the minimum
semiannual royalty payment for two consecutive semiannual periods, the licensor
has the right to terminate the Boag License. In the event of infringement of the
patent by third parties, the Company's right to enforce the patent is subject to
the licensor's superior right to bring suit on its own and to recover all
damages without accounting to the Company. There can be no assurance that the
Boag Patent will provide the Company significant exclusivity or benefit in its
markets. Furthermore, competitors may develop alternative technology that
achieves the same advantages as the Boag Patent.

Allergan License. On March 11, 1996, the Company entered into a License
Agreement (the "Allergan License") with Allergan, Inc. for the use of a U.S.
patent entitled "Pressure Transducer Magnetically-Coupled Interface
Complementing Minimal Diaphragm Movement During Operation" issued on February
28, 1995, and its foreign counterparts (the "Allergan Patent"). The Company has
exclusive worldwide rights to the patented technology, limited to the field of
use of kidney dialysis machines and methods. The Allergan License has a duration
for as long as the Allergan Patent remains in effect and provides for royalty
payments to Allergan based on manufacturing of the PHD System, which
incorporates the patented technology. Royalty payments are to be made quarterly,
with minimum annual royalty payments beginning in 1998. If the Company fails to
pay the full minimum annual royalties, the License Agreement will terminate. If
the Company pays at least half of the minimum annual royalties but does not pay
such royalties in full, the License Agreement shall be converted to a non-
exclusive license. There can be no assurance that the Allergan Patent will
provide the Company significant exclusivity or benefits in its

                                       13
<PAGE>

markets. Furthermore, competitors may develop alternative technology that
achieves the same advantages as the Allergan Patent.

There can be no assurance that any of the Company's pending patent applications
will be approved by the patent offices in the various countries in which they
were filed. In addition, there can be no assurance that the Company will develop
additional proprietary products or processes that are patentable or that any
patents that may issue to or be licensed by the Company will provide the Company
with competitive advantages. There can be no assurance that the Company's patent
applications or patents that may issue to or be licensed by the Company will not
be challenged by any third parties or that the patents of others will not
prevent the commercialization of products incorporating the Company's
technologies. Furthermore, there can be no assurance that others will not or
have not independently developed similar products, duplicated and designed any
of the Company's products or design around the patents that may issue to or be
licensed by the Company. Any of the foregoing results could have a material
adverse effect on the Company.

The commercial success of the Company will depend, in part, on its ability to
avoid infringing patents issued to others. The field of dialysis includes a
significant number of patents that have been issued to third parties. The
Company may receive from third parties, including potential or actual
competitors, notices claiming that it is infringing third party patents or other
proprietary rights. If it was determined that the Company was infringing any
third-party patent, the Company could be required to pay substantial damages,
alter its products or processes, obtain licenses or cease certain activities. In
addition, if patents are issued to others which contain claims that compete or
conflict with the licensed patents or patent applications of the Company and
such competing or conflicting claims are ultimately determined to be valid, the
Company may be required to pay damages, to obtain licenses to these patents, to
develop or obtain alternative technology or to cease using such technology. If
the Company is required to obtain any licenses, there can be no assurance that
the Company will be able to do so on commercially favorable terms, if at all.
The Company's failure to obtain a license to any technology that it may require
to commercialize its products could have a material adverse impact on the
Company's business, operating results and financial condition.

In addition to patent licenses and applications for patents, the Company
possesses trade secrets, copyrights, proprietary know-how and unpatented
technological advances. The Company seeks to protect these assets, in part, by
confidentiality agreements with its business partners, consultants and vendors
and non-competition agreements with its officers and employees. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach or that the Company's trade secrets and
proprietary know-how will not otherwise become known or be independently
developed by others.

                                   Employees

As of December 31, 2000, the Company had 94 full-time employees, 82 of whom were
employed in research and development capacities. The Company considers its
employee relations to be good.

                      Executive Officers and Key Employees

The information under this Item is furnished pursuant to Instruction 3 to Item
401(b) of Regulation S-K. Executive Officers of the Company are elected by and
serve at the discretion of the Board of Directors.

William C. Dow was appointed President and Chief Executive Officer and a
director of the Company in September 1999. From August 1997 until joining the
Company in September 1999, he served as President and Chief Executive Officer of
PLC Systems Inc., a manufacturer of lasers used in cardiac surgery. From 1993 to
1997, he served as President and Chief Executive Officer of Deknatel Snowden
Pencer Worldwide, Inc., a $100 million medical device manufacturer that became a
manufacturing and marketing subsidiary of Genzyme Corporation in 1996. Mr. Dow
has over 25 years of experience in the medical device and service industry
having held various positions in sales, marketing, distribution and general
management with Griffith Micro Science, Kendall, Terumo and American Hospital
Supply. Mr. Dow is a graduate of the United States Naval Academy with a Bachelor
of Science in Engineering and served as both a pilot and a Supply Corps officer
in the U.S. Navy.

                                       14
<PAGE>

Richard P. Goldhaber, Senior Vice President and Chief Technical Officer, joined
the Company in July 2000. Prior to joining the Company, from 1993 to 2000, he
was Vice President of Research and Development at Minntech Corporation, a
company that develops, manufactures and distributes dialysis related products.
Prior to Minntech, from 1965 to 1993, he held positions of increasing
responsibility in product development with Baxter International Inc., including
20 years developing dialysis products.

Dennis G. Erwin, Senior Vice President and Chief Financial Officer, joined the
Company in August 2000. From 1995 until joining the Company in August 2000, he
served as President of CC Inc., a diverse investment firm with interests in
various operating companies. Prior to CC Inc., from 1982 to 1995 he was founder
and a principal for CFO and Transaction Consulting Services, a firm that
provided acquisition, sale and finance consulting services for small to mid-size
companies.

David L. Bellitt, Senior Vice President of Sales and Marketing, joined the
Company in November 2000 with over 25 years of experience in the medical
devices, diagnostics and home healthcare markets. From June 1997 to November
1999, he served as Senior Vice President at Organon Teknika Corporation, a $100
million division of Akzo Nobel dealing in medical diagnostic instrumentation
systems. Prior to Organon, from 1995 to 1997, he was Senior Vice President of
Bell+Howell Mail Processing Systems, with responsibilities for worldwide
marketing, sales and service for the $370 million division operating in 48
countries.

The following individuals are key employees of the Company:

Carl M. Kjellstrand, M.D., Ph.D., joined the Company in April 1997 as Vice
President of Medical Affairs. He joined Aksys from the University of Alberta
with more than 40 years of medical teaching experience. As a long-time advocate
of patients' rights, his research in dialysis has been published in more than
450 articles. A former consultant to the U.S. Food and Drug Administration on
medical devices and former president of the Canadian Society of Nephrology, he
is an active member of leading scientific societies and editorial boards.

Thomas F. Scully joined the Company in January 1996 as Vice President of
Operations. From 1971 to 1995, Mr. Scully worked at Baxter International Inc. in
various operational roles, including responsibilities as Vice President, Sales
and Operations of the Renal Division. In that role, Mr. Scully was involved
principally in the design, development and management of the Renal Division's
home care operations network.

Michael J. Cline joined the Company in July 2000 as Vice President of
Manufacturing. From 1995 until joining the Company in July 2000, he served as
Vice President of Operations for AutoMed Technologies (formerly Baxter
IV/Production Systems), where he had responsibilities for operations,
manufacturing, global logistics and technical support. From 1988 to 1994, he was
Vice President at Becton Dickinson Cellular Imaging Systems, a manufacturer of
capital equipment, software and consumable products in the medical device
industry.

                          Product Liability Exposure

The Company's business exposes it to potential product liability risks that are
inherent in the production, marketing and sale of dialysis products. There can
be no assurance that the Company will be able to avoid significant product
liability exposure. Upon commencement of the first human use of the PHD System
in January 2000, the Company initiated product liability insurance coverage,
with a limit of $10 million. There can be no assurance that such insurance
coverage is sufficient, or that additional coverage will be available on
acceptable terms or at all or that any insurance policy if obtained will provide
adequate protection against potential claims. Furthermore, the Company's
agreements with contract manufacturers require the Company to obtain product
liability insurance, and the failure to obtain adequate insurance coverage could
materially and adversely affect the Company's ability to produce the PHD System.
A successful claim brought against the Company in excess of any insurance
coverage maintained by the Company could have a material adverse effect upon the
Company. In addition, the Company has agreed to indemnify certain of its
contract manufacturers against certain liabilities resulting from the sale of
the PHD System.

                                       15
<PAGE>

                              Foreign Operations

In April 1996, the Company established Aksys Japan, K.K. ("AJKK"), a wholly-
owned Japanese subsidiary. AJKK had no employees as of December 31, 2000. The
Company has engaged the services of a business consultant to act on behalf of
AJKK in pursuing business opportunities in Japan. The primary purpose of AJKK is
to establish a presence for regulatory, business development and eventual
technical and customer support as the Company progresses through the stages of
clinical studies, regulatory approval and market launch. All efforts and
decisions are directed from the Company's headquarters in Lincolnshire,
Illinois.

On June 21, 1999, the Company entered into a co-development and license
agreement (the "Agreement") with Teijin Limited of Osaka, Japan. Under the terms
of the Agreement, Teijin paid $7.0 million to the Company for the right to
manufacture and sell the PHD System in Japan. The Company is also entitled to
future royalty payments from future product sales in Japan. The $7.0 million has
been recognized as revenue. Teijin also paid the Company a $7.0 million co-
development fee relating to the PHD System. Use of the proceeds from the co-
development fee is restricted to development costs incurred on the PHD System
and may not be used for other general corporate purposes. Amounts paid under the
co-development arrangement are recognized as revenue as development costs on the
PHD System are incurred. During the years ended December 31, 2000 and 1999, the
Company recognized revenue of $3.4 million and $2.6 million, respectively,
related to co-development of the PHD System. During 2000, the Agreement was
amended. The final revenue related to the co-development of the PHD System was
recognized during 2000, and the remaining unspent co-development funds under the
Agreement have been recorded in other liabilities on the balance sheet as of
December 31, 2000.

On January 7, 1998, the Company established a strategic alliance with Teijin, as
a result of mutually initiated negotiations. The alliance is represented by a
Stock Purchase Agreement and a Joint Development Agreement. Under the terms of
the Stock Purchase Agreement, Teijin purchased 493,097 newly issued common
shares of the Company at a price of $10.14 per share and received certain
registration rights with respect to such shares. The Joint Development Agreement
provided that, conditional on the achievement of certain milestones, Teijin
would make additional cash payments to the Company. The first of those
milestones, for agreeing to the regulatory strategy in Japan, resulted in a
payment to the Company of $1,000,000 during 1998. The Joint Development
Agreement was superceded by the Agreement entered into in 1999.

Teijin is a leading Japanese manufacturer of synthetic fibers, chemicals and
plastics, with annual sales in excess of $5 billion, of which over $600 million
is derived from pharmaceuticals and medical products. Teijin pioneered and today
is a leader in the home oxygen therapy business in Japan, and is also one of the
principal suppliers to the dialysis industry of the resins and fibers used to
produce dialyzers.

Item 2.  Properties.

The Company leases approximately 41,500 square feet of office space in
Lincolnshire, Illinois to conduct its research, development and administrative
functions. The Company believes that its present facilities are adequate for its
operations. The Company presently expects all manufacturing will be contracted
out to third party subcontractors.

Item 3.  Legal Proceedings.

The Company is not involved in any material pending legal proceedings.

Item 4.  Submission of Matters to a Vote of Security-Holders.

There were no matters submitted for a vote of the Company's stockholders during
the fourth quarter ended December 31, 2000.

                                       16
<PAGE>

PART II

Item 5.  Market for the Registrant's Common Stock and Related Stockholder
         Matters.

The Company's Common Stock trades on the Nasdaq National Market under the symbol
AKSY. The following table lists the quarterly high and low prices of the Common
Stock for the period from January 1, 1999 through December 31, 2000.

                  Fiscal         Fiscal
                   Year          Quarter           High           Low
                  ------         -------          -------         ------
                   2000            1/st/          $13.375         $4.875
                                   2/nd/           11.375          6.563
                                   3/rd/            14.00          7.813
                                   4/th/            17.50          11.50

                   1999            1/st/          $  8.25         $ 4.00
                                   2/nd/            6.625           4.50
                                   3/rd/            6.938           5.00
                                   4/th/             6.00           3.75

There were 248 stockholders of record of the Company's Common Stock as of March
1, 2001. In addition, the Company estimates that there were approximately 5,500
beneficial stockholders at March 1, 2001, who held shares in "street name." The
Company has not paid cash dividends to date, and management anticipates that all
future earnings will be retained for development of the Company's business.

Item 6.  Selected Financial Data.

The selected statements of operations and balance sheet data as of December 31,
2000 and 1999 set forth below have been derived from the audited financial
statements of the Company included as Exhibit 13 to this Annual Report on Form
10-K. The selected statements of operations and balance sheet data as of
December 31, 1998, 1997 and 1996 set forth below have been derived from the
audited financial statements of the Company that have not been included in this
Annual Report on Form 10-K. The historical financial data for the Company is not
necessarily indicative of future operations and should be read in conjunction
with the financial statements and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Annual Report on Form 10-K.

                                       17
<PAGE>

<TABLE>
<CAPTION>
                                                                                                                   Cumulative from
                                                                                                                   January 18, 1991
                                                             Year Ended December 31,                                  (inception)
                                  -----------------------------------------------------------------------------
                                                                                                                       through
                                     2000             1999            1998             1997            1996       December 31, 2000
                                 ------------     ------------    ------------     ------------     -----------   -----------------
<S>                              <C>              <C>             <C>              <C>              <C>           <C>
Consolidated Statement of
 Operations Data:
Revenues:
 Joint development income        $  3,434,809     $  9,609,313    $  1,000,000     $         --     $        --        $ 14,044,122
                                 ------------     ------------    ------------     ------------     -----------        ------------
Operating costs and expenses:
 Research and development          14,541,873       15,909,993      15,342,533       10,886,803       6,515,485          69,865,303
 Business development               1,025,315        1,737,069       1,185,254        1,043,867         547,767           5,898,802
 General and administrative         4,738,737        4,258,162       3,304,747        3,848,701       2,559,441          20,182,810
                                 ------------     ------------    ------------     ------------     -----------        ------------
 Total operating expenses          20,305,925       21,905,224      19,832,534       15,779,371       9,622,693          95,946,915
                                 ------------     ------------    ------------     ------------     -----------        ------------

Operating loss                    (16,871,116)     (12,295,911)    (18,832,534)     (15,779,371)     (9,622,693)        (81,902,793
Other income, net                   1,159,961          997,642       1,677,807        2,272,769       1,803,656           8,205,474
                                 ------------     ------------    ------------     ------------     -----------        ------------

Net loss                         $(15,711,155)    $(11,298,269)   $(17,154,727)    $(13,506,602)    $(7,819,037)       $(73,697,319)
                                 ============     ============    ============     ============     ===========        ============

Net loss per share/(1)/          $      (0.93)    $      (0.76)   $      (1.17)    $      (0.98)    $     (0.63)       $     (10.25)
                                 ============     ============    ============     ============     ===========        ============

Weighted average shares
 outstanding/(1)/                  16,934,532       14,885,449      14,653,953       13,791,236      12,441,718           7,190,491
                                 ============     ============    ============     ============     ===========        ============

<CAPTION>
                                                                                        December 31,
                                                        ---------------------------------------------------------------------------

                                                            2000           1999            1998            1997            1996
                                                        ------------   ------------    ------------    ------------    ------------
<S>                                                     <C>            <C>             <C>             <C>             <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments       $ 19,121,697   $ 14,841,488    $ 20,260,268    $ 29,195,656    $ 45,649,934
Working capital                                           16,636,100      9,191,004      18,009,636      28,432,501      45,041,960
Total assets                                              22,188,020     18,811,434      25,941,835      36,647,251      50,147,510
Long-term liabilities/(2)/                                   158,144        146,345         123,041          77,269          19,630
Deficit accumulated during development stage             (73,700,352)   (57,989,197)    (46,690,928)    (29,536,201)    (16,029,599)
Total stockholders' equity                                19,349,018     12,623,381      23,301,944      35,287,989      48,684,094
</TABLE>

/(1)/ Computed on the basis described in Note 1 of Notes to Consolidated
      Financial Statements.
/(2)/ Consists primarily of deferred rent under operating lease for facilities.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.

Overview

Since its inception in January 1991, the Company has been engaged in the
development of hemodialysis products and services for patients suffering from
ESRD. The Company has developed the PHD System, which is designed to enable
patients to perform daily hemodialysis at alternate sites, such as the patient's
home. The Company has never generated sales revenue and has incurred losses
since its inception. At December 31, 2000, the Company had a deficit accumulated
during the development stage of $73.7 million. The Company expects to incur
additional losses

                                       18
<PAGE>

in the foreseeable future at least until such time that it obtains necessary
regulatory clearances or approvals from the FDA to market the PHD System in the
United States or it is able to secure equivalent regulatory approvals to market
the PHD System in countries other than the United States.

Note on Forward-Looking Information

Certain statements in this Annual Report on Form 10-K and in future filings made
by the Company with the Securities and Exchange Commission and in the Company's
written and oral statements made by or with the approval of an officer of the
Company constitute "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, and the Company intends that such forward-looking statements be subject
to the safe harbors created thereby. The words "believes," "expects,"
"estimates," "anticipates," and "will be," and similar words or expressions,
identify forward-looking statements made by or on behalf of the Company. These
forward-looking statements reflect the Company's views as of the date they are
made with respect to future events and financial performance, but are subject to
many uncertainties and factors which may cause the actual results of the Company
to be materially different from any future results expressed or implied by such
forward-looking statements. Factors that could cause such a difference include,
but are not limited to, (i) risks related to the failure to meet development and
manufacturing milestones for the PHD System on a timely basis, (ii) risks
related to the regulatory approval process, (iii) market, regulatory and
reimbursement conditions, including without limitation patient/clinic acceptance
of the PHD System, (iv) additional capital requirements with respect to among
other things the commercialization of the PHD System, (v) changing assumptions
with respect to projected unit pricing, product cost, gross margin and operating
profit targets as identified in the business plan, which are as yet untested,
(vi) risks inherent in relying on a third party to manufacture products, (vii)
the impact of products which may be developed, adapted or may otherwise compete
with the PHD System, (viii) changes in QSR requirements and (ix) other factors
discussed elsewhere in this Annual Report on Form 10-K. Regulatory approval
risks include, without limitation, whether and when we will obtain clearance
from the FDA of a 510(k) pre-market notification and similar clearances from
other countries in which we may attempt to distribute the PHD System. Additional
clinical trials and/or other data may be needed in order to obtain regulatory
clearances. The Company does not undertake to publicly update or revise its
forward-looking statements even if experience or future changes make it clear
that any projected results or events expressed or implied therein will not be
realized.

Results of Operations

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Net loss for the year ended December 31, 2000 was $15.7 million ($0.93 per
share), compared with $11.3 million ($0.76 per share), for the year ended
December 31, 1999. The increase in net loss is attributable to one-time income
of $7.0 million in 1999 related to the license of manufacturing and marketing
rights to the PHD System in Japan to the Company's partner, Teijin Limited of
Osaka, Japan, as discussed below.

Joint development income.  On June 21, 1999, the Company entered into a co-
-------------------------
development and license agreement with Teijin. Under the terms of the agreement,
Teijin paid $7.0 million to the Company for the right to manufacture and sell
the PHD System in Japan. The Company is also entitled to future royalty payments
from future product sales in Japan. The $7.0 million has been recognized as
revenue in 1999. Teijin also paid the Company a $7.0 million co-development fee
relating to the PHD System. Use of the proceeds from the co-development fee is
restricted to development costs incurred on the PHD System and may not be used
for other general corporate purposes. Amounts paid under the co-development
arrangement are recognized as revenue as development costs on the PHD System are
incurred. The Company has recognized $3.4 million and $2.6 million of revenue
related to co-development of the PHD System in 2000 and 1999, respectively. The
agreement was amended in 2000, and final revenue under the co-development
agreement was recognized during 2000.

Research and development expenses.   For the year ended December 31, 2000,
----------------------------------
research and development expenses decreased to $14.5 million from $15.9 million
for the year ended December 31, 1999. The decrease of $1.4 million

                                       19
<PAGE>

was primarily attributable to a one-time charge in 1999 of approximately $1
million. During 1999, the Company determined that the PHD Systems built for
clinical trials, plus additional components to be used for the future
manufacture of PHD Systems, would differ from the version of the PHD System that
will eventually be commercialized, resulting in the one-time charge of
approximately $1 million to write those assets down to a carrying value of zero.

Business development expenses.  During 2000, business development expenses
-----------------------------
decreased $0.7 million, from $1.7 million in 1999 to $1.0 million in 2000.  The
decrease is primarily attributable to 1999 costs related to execution of the co-
development and licensing agreement with Teijin.

General and administrative expenses.  For the year ended December 31, 2000,
-----------------------------------
general and administrative expenses increased $0.5 million to $4.7 million. The
increase is primarily a result of additions to the senior management team during
the middle of 2000.

Interest income.  For the year ended December 31, 2000, interest income was $1.2
---------------
million, compared with $1.0 million for the year ended December 31, 1999, an
increase of $0.2 million. The increase is primarily attributable to interest
earned on the net proceeds from the Company's private equity financings in 2000,
totaling $20.5 million.

Results of Operations

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

Net loss for the year ended December 31, 1999 was $11.3 million ($0.76 per
share), compared with $17.2 million ($1.17 per share), for the year ended
December 31, 1998. The decrease in net loss during 1999 compared with 1998 is
due to $9.6 million of revenue recognized under the co-development and licensing
agreement with Teijin, offset by increased operating expenses. The Company's use
of cash to fund operations resulted in a reduction of interest bearing
investments and a related decrease in interest income during 1999 as compared to
1998.

Joint development income. As discussed in more detail above, the Company entered
------------------------
into a co-development and license agreement (the "Agreement") with Teijin.
The Company recognized $2.6 million of revenue related to co-development of
the PHD System in 1999.

Research and development expenses.  For the year ended December 31, 1999,
---------------------------------
research and development expenses increased to $15.9 million from $15.3 million
for the year ended December 31, 1998. The increase of $0.6 million in 1999
included a one-time charge of approximately $1 million.  During 1999, the
Company determined that the PHD Systems built for clinical trials, plus
additional components to be used for the future manufacture of PHD Systems,
would differ from the version of the PHD System that will eventually be
commercialized, resulting in the one-time charge of approximately $1 million to
write those assets down to a carrying value of zero.

Business development expenses.  During 1999, business development expenses
-----------------------------
increased $0.5 million, from $1.2 million in 1998 to $1.7 million in 1999.  The
increase is primarily attributable to costs related to execution of the co-
development and licensing agreement with Teijin.

                                       20
<PAGE>

General and administrative expenses.   For the year ended December 31, 1999,
-----------------------------------
general and administrative expenses increased from $3.3 million in 1998 to $4.3
in 1999.  The increase of $1.0 million is primarily a result of the transition
costs of hiring a new President and CEO during 1999.

Interest income.  For the year ended December 31, 1999, interest income was $1.0
---------------
million, compared with $1.7 million for the year ended December 31, 1998, a
decrease of $0.7 million. The Company's use of cash to fund operations resulted
in a reduction of interest bearing investments and a related decrease in
interest income during the year ended December 31, 1999.

Liquidity and Capital Resources

The Company has financed its operations to date primarily through public and
private sales of its equity securities. Through December 31, 2000, the Company
had received net offering proceeds from public and private sales of equity
securities of approximately $92.2 million. Since its inception in 1991 through
December 31, 2000, the Company made $6.8 million of capital expenditures and
used $65.3 million in cash to support its operations. At December 31, 2000, the
Company had cash and cash equivalents of $19.1 million, working capital of $16.6
million and restricted long-term investments of $0.8 million. The Company
believes that inflation generally has not had a material impact on its
operations or liquidity to date.

The Company estimates that during 2001 it will spend approximately $18 million
for operations, regulatory approvals and commercialization activities of the
PHD System. The Company expects that substantially all of this amount will be
used to (i) develop the next generation PHD System to be used for
commercialization in the U.S., Japan and worldwide and (ii) prepare for
commercialization of the PHD in limited quantities in 2001. The Company expects
to continue to incur substantial expenses related to manufacturing scale-up and
commercialization of the PHD System and the protection of patent and other
proprietary rights. The Company believes that cash and short-term investments as
of December 31, 2000 are sufficient to finance the Company's operations through
December 31, 2001, and that additional capital will be required to fund
operations beyond December 31, 2001.

Generally, the Company expects U.S. customers to purchase PHD Systems and enter
into contracts whereby the Company will provide all products and services
related to the PHD Systems for a single monthly price, which would include all
consumables, service and product support. As an alternative, U.S. customers may
enter into lease agreements for the PHD Systems, under which the single monthly
price would also include a lease payment. The Company's present
commercialization plan for markets outside of the United States is to develop a
partnership in those markets to distribute the PHD System and related
consumables and services. Financing production of the PHD System in quantities
necessary for commercialization will require a significant investment in working
capital. This need for working capital is likely to increase to the extent that
demand for the PHD System increases. The Company would, therefore, have to rely
on sources of capital beyond cash generated from operations to finance
production of the PHD System even if the Company were successful in marketing
its products and services. The Company currently intends to finance the working
capital requirements associated with these arrangements through equipment and
receivable financing with a commercial lender. If the Company is unable to
obtain such equipment financing, it would need to seek other forms of financing,
through the sale of equity securities or otherwise, to achieve its business
objectives. The Company has not yet obtained a commitment for such equipment
financing, and there can be no assurance that the Company will be able to obtain
equipment financing or alternative financing on acceptable terms or at all.

The Company's funding needs will depend on many factors, including the timing
and costs associated with obtaining FDA clearance or approval, continued
progress in research and development, the results of clinical studies,
manufacturing scale-up, the cost involved in filing and enforcing patent claims
and the status of competitive products. In the event that the Company's plans
change, its assumptions change or prove inaccurate or it is unable to obtain
production financing on commercially reasonable terms, the Company could be
required to seek additional financing sooner than currently anticipated. In
addition, in the future the Company will require substantial additional
financing to fund full-scale production and marketing of the PHD System and
related services. The Company has no current arrangements with respect to
sources of additional financing. There can be no

                                       21
<PAGE>

assurance that FDA clearance will be obtained in a timely manner or at all or
that additional financing will be available to the Company when needed, on
commercially reasonable terms, or at all.

The Company has not generated taxable income to date. At December 31, 2000, the
net operating losses available to offset future taxable income were
approximately $75.1 million. Because the Company has experienced ownership
changes, future utilization of the carryforwards may be limited in any one
fiscal year pursuant to Internal Revenue Code regulations. The carryforwards
expire at various dates beginning in 2008. As a result of the annual limitation,
a portion of these carryforwards may expire before ultimately becoming available
to reduce federal income tax liabilities.

Item 7A.  Quantitative and Qualitative Disclosure About Market Risk.

The investments of the Company have been made for investment (as opposed to
trading) purposes. Interest rate risk with respect to the investments of the
Company is not significant as substantially all of such investments are in U.S.
dollar cash equivalents and short-term investments (with maturities of less than
18 months), which are by their nature less sensitive to interest rate movements.
The investments of the Company are generally made in U.S. government and federal
agency bonds and high-grade commercial paper and corporate bonds.

Item 8.   Financial Statements and Supplementary Data.

The Consolidated Balance Sheets as of December 31, 2000 and 1999, and the
Consolidated Statements of Operations, Stockholders' Equity and Cash Flows for
the years ended December 31, 2000, 1999 and 1998 and for the period from January
18, 1991 (inception) through December 31, 2000, the Notes to the Consolidated
Financial Statements and the Independent Auditors' Report set forth on pages 15
through 27 of the 2000 Annual Report to Stockholders of the Company are
incorporated herein by reference.

Item 9.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure.

Not applicable.

PART III

Item 10.  Directors and Executive Officers of the Registrant.

Information with respect to the Directors of the Company is set forth in the
Proxy Statement under the heading "Election of Directors," which information is
incorporated herein by reference. Information regarding the executive officers
and certain key employees is set forth above in Part I under "Business -
Executive Officers and Key Employees." Information required by Item 405 of
Regulation S-K is set forth in the Proxy Statement under the heading "Section 16
(a) Beneficial Ownership Reporting Compliance," which information is
incorporated herein by reference.

Item 11.  Executive Compensation.

Information with respect to executive compensation is set forth in the Proxy
Statement under the heading "Compensation of Executive Officers," which
information is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

Information with respect to security ownership of certain beneficial owners and
management is set forth in the Proxy Statement under the heading "Beneficial
Ownership of Common Stock," which information is incorporated herein by
reference.

                                       22
<PAGE>

Item 13.  Certain Relationships and Related Transactions.

None.

PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)  Financial Statements:

     1.     Financial Statements.

            The Consolidated Balance Sheets as of December 31, 2000 and 1999,
            and the Consolidated Statements of Operations, Stockholders' Equity
            and Cash Flows for the years ended December 31, 2000, 1999 and 1998
            and for the period from January 18, 1991 (inception) through
            December 31, 2000, the Notes to the Consolidated Financial
            Statements and the Independent Auditors' Report set forth on pages
            15 through 27 of the 2000 Annual Report to Stockholders of the
            Company are incorporated herein by reference.

     2.     Financial Statement Schedules.

            None.

(b)  Reports on Form 8-K.

     None.

(c)  Exhibits.

     See "Exhibits Index" below.

                                       23
<PAGE>

SIGNATURES

     Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 28/th/ day of
March, 2001.

                                               AKSYS, LTD.

                                               By        /s/ Steven A. Bourne
                                                  ------------------------------
                                                         Steven A. Bourne
                                                         Controller and
                                                         Principal Accounting
                                                         Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on this 28/th/ day of March, 2001.

<TABLE>
<CAPTION>
                     Signature                                          Capacity
                     ---------                                          --------

                <S>                                    <C>
                /s/ William C. Dow                     President, Chief Executive Officer and Director
---------------------------------------------------
                  William C. Dow                       (Principal Executive Officer)


                /s/ Dennis G. Erwin                    Senior Vice President and Chief Financial Officer
---------------------------------------------------
                  Dennis G. Erwin


                /s/ Richard B. Egen                    Chairman of the Board of Directors
---------------------------------------------------
                  Richard B. Egen


                /s/ Peter H. McNerney                  Director
---------------------------------------------------
                  Peter H. McNerney


                /s/ W. Dekle Rountree, Jr.             Director
---------------------------------------------------
                  W. Dekle Rountree, Jr.


                /s/ Bernard R. Tresnowski              Director
---------------------------------------------------
                  Bernard R. Tresnowski
</TABLE>

                                       24
<PAGE>

                                  AKSYS, LTD.
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number    Description
-----------------------------------------------------------------------------------------------------------
<S>       <C>
3.1       Restated Certificate of Incorporation of Aksys, Ltd./(1)/.............................
3.2       Amended and Restated By-Laws of Aksys, Ltd./(1)/......................................
4.1       Form of certificate representing shares of Common Stock,
             $.01 par value per share/(1)/......................................................
4.2       Registration Agreement, dated as of April 2, 1993, among
             the Company and certain stockholders of the Company/(1)/...........................
4.3       Amendment No. 1 to Registration Agreement, dated as of
             September 22, 1995, among the Company and certain
             stockholders of the Company/(1)/...................................................
4.4       Registration Rights Agreement, dated as of April 7, 2000, by
             and among the Company and the investors named therein/(6)/.........................
4.5       Registration Rights Agreement, dated as of August 14, 2000,
             by and among the Company and the investors named therein/(7)/......................
10.1      Aksys, Ltd. 1993 Stock Option Plan/(1)/...............................................
10.5      Manufacturing Agreement, dated as of November 15, 1994,
             between the Company and SeaMED Corporation/(1)/....................................
10.6      Manufacturing Agreement, dated as of January 23, 1996,
             between the Company and Texas Medical Products, Inc./(1)/..........................
10.7      License Agreement, dated as of April 1, 1993, between the
             Company and Zbylut J. Twardowski/(1)/..............................................
10.8      License Agreement, dated as of April 1, 1993, between the
             Company and Cynthia P. Walters/(1)/................................................
10.9      Form of Indemnification Agreement/(1)/................................................
10.10     License Agreement, dated as of March 11, 1996, between the
             Company and Allergan, Inc./(1)/....................................................
10.11     Lease for Property at Two Marriott Drive/(3)/.........................................
10.12     Severance, Confidentiality and Post-Employment
            Restrictions Agreement, dated as of October 12, 1998
             between the Company and Bruce E. Dobsch/(4)/.......................................
10.13     Severance, Confidentiality and Post-Employment
            Restrictions Agreement, dated as of October 4, 1999
            Between the Company and William C. Dow/(5)/.........................................
10.14     Manufacturing Agreement, dated as of February 28, 2001,
             Between the Company and Peak Industries, Inc./9/...................................
10.15     Aksys, Ltd. 1996 Stock Awards Plan as amended/(8)/....................................
10.16     Aksys, Ltd. 2001 Employee Stock Purchase Plan/(8)/....................................
13        Annual Report to Stockholders. Except as specifically incorporated herein
          by reference, this document shall not be deemed "filed" as part of this
          Annual Report on Form 10-K/(9)/.......................................................
21        Subsidiaries of the Company/(1)/......................................................
23        Consent of KPMG LLP/(9)/..............................................................
</TABLE>

/(1)/ Incorporated by reference to the Company's Registration Statement on Form
      S-1 (Registration No. 333-2492).
/(2)/ Incorporated by reference to the Company's Registration Statement on Form
      S-8 (Registration No. 333-18073).
/(3)/ Incorporated by reference to the Company's Annual Report on Form 10-K for
      the year ended December 31, 1997.
/(4)/ Incorporated by reference to the Company's Annual Report on Form 10-K for
      the year ended December 31, 1998.
/(5)/ Incorporated by reference to the Company's Annual Report on Form 10-K for
      the year ended December 31, 1999.
/(6)/ Incorporated by reference to the Company's Current Report on Form 8-K,
      filed on April 19, 2000.
/(7)/ Incorporated by reference to the Company's Current Report on Form 8-K,
      filed on August 21, 2000.
/(8)/ Incorporated by reference to the Company's Proxy Statement for its 2001
      Annual Meeting of Stockholders.
/(9)/ Filed herewith.

                                       25