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Aksys, Ltd

Two Marriott Drive

Lincolnshire, IL 60069

October 31, 2005

Securities and Exchange Commission

100 F Street, NE

Washington, D.C.
20549 -6010

Attention:                                         Brian Cascio

Kristin Lochhead

Kate Tillan

Re:                               Aksys, Ltd.

File No. 000-28290

Response to Staff Comments on Form 10-K for the year ended December 31,
2004 Filed March 16, 2005 and Form 10-Q for the quarterly period
ended June 30, 2005

Ladies and Gentlemen:

This letter responds to your letter dated October 17,
2005 to Aksys, Ltd. (“Aksys” or the “Company”) relating to the
Company’s filing on Form 10-K for the year ended December 31, 2004
filed March 16, 2005 and Form 10-Q filing for the quarterly period
ended June 30, 2005  (each a “Filing”
and collectively the “Filings”).

The Company’s responses to the staff’s comments are
numbered to relate to the corresponding comments in your letter.  References to page numbers in our
responses are to page numbers of the applicable Filing.  Capitalized terms used in this letter but not
otherwise defined have the meanings assigned to them in the Filings.

Form 10-K for the year ended December 31,
2004

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

Results of Operations

Year Ended December 31, 2004 Compared to Year
Ended December 31, 2003

Revenue, page 31

1.                                       We
see your discussion of the 60% increase in revenue from the year ended December 31,
2003 and note that you sold 27 systems and generated rental revenue of 71 units
in fiscal year 2004 compared to the sale of 28 systems and rental revenue on 31
units in fiscal year 2003.  Please tell
us and revise future filings to disclose the revenue generated from sales of
products versus rental of units.  In
addition, please clarify how the changes in number of units sold or units under
operating leases contributed to the changes in revenue during the periods
presented, for example through a discussion of changes in average product price
or rental rates.

Response: In future filings, we will
present within the Consolidated Statement of Operations the amount of revenue
derived from machine sales, machine rentals, and service and supplies
separately and will no longer disclose the number of individual units sold as
we consider specific pricing information to be proprietary.  We will identify and describe the factors
responsible for changes in the financial statement terms in the following
manner:

Revenue generated from sales of
machines decreased $4,000 to $1,072,000 from $1,076,000 for the years ended December 31,
2004 and 2003, respectively.  Rental
revenue increased $269,000 or 230% to $386,000 from $117,000 for the years
ended December 31, 2004 and 2003, respectively.  Service and supply revenue increased $659,000
or 221% to $958,000 from $299,000 for the years ended December 31, 2004
and 2003, respectively.

Product revenue from units sold is
recorded when the PHD System has been installed and a patient has started
training whereas rental revenue from operating leases is recognized over the
duration of the lease, starting when the machine is installed and the patient
starts training. Changes in the number of units sold will have a more
significant impact on revenue than changes in the number of rental units. We will
continue to extend renting as an option to our customers as we continue to
increase market acceptance of our product.

While there have been no material
changes to our monthly rental price over the past two years, rental revenue and
service and supply revenue has increased as our patient base has continued to
grow.  The following table shows patient
growth by quarter.

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  Date

  Number
  of Patients

  December 31,
  2003

  67

  March 31,
  2004

  77

  June 30,
  2004

  82

  September 30,
  2004

  106

  December 31,
  2004

  121

Consolidated Financial Statements

Note 1.  Summary
of Significant Accounting Policies, page 46

(f) Long-Lived Assets, page 47

2.                                       We
note that certain PHD machines used as demonstration models or internal
training are transferred from inventory to equipment and depreciated over their
useful life.  We note that you also
transfer machines from inventory to leased assets.  Tell us how you account for these transfers
in your consolidated statement of cash flows.
Additionally, clarify what line item you record the depreciation of the
demonstration or training products.

Response: All machines purchased by
the Company are first recorded as inventory since their ultimate use is not
determined upon completion of production.
As machines are transferred for other uses within the Company we treat
the transfers in the Consolidated Statement of Operations and Consolidated
Statement of Cash Flows as described in the paragraph below.

Transfers of machines used as
demonstration models or for internal testing and training are included in the “purchases
of property and equipment” line of the “cash flows from investing activities” section of
the Statement of Cash Flows and the related depreciation expense is included in
the “depreciation and amortization” line of “adjustments to reconcile net loss
to net cash used in operating activities” in the Statement of Cash Flows.   Depreciation expense for demonstration
models or product testing is included in the “sales and marketing” or “research
and development” line, respectively, of “operating expenses” in the Statement
of Operations.  Depreciation expense for
machines used for internal training is included in the “services and supplies”
line of “cost of sales” in the Statement of Operations since these machines are
used to train the field technicians.

Machines transferred from inventory
to leased assets are included in the “purchases of equipment leased to others”
line of the “cash flows from investing activities” section of the
Statement of Cash Flows.   The related depreciation expense is included
in the “product” line of “cost of sales” in the Statement of Operations and the
“depreciation and amortization” line of “adjustments to reconcile net loss to
net cash used in operating activities” in the Statement of Cash Flows.

In the future, we will include this
information on accounting for machine transfers in our footnotes.

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Note 2.
Investments, page 51

3.                                       In
future filings, please disclose information about the contractual maturities of
all long-term securities, as required by paragraph 20 of SFAS 115.

Response: At December 31, 2004
we had one long-term security and this security had a contractual maturity date
of February 17, 2009. In the future we will include this disclosure in our
footnotes.

Form 10-Q for the quarterly period ended June 30,
2005

Consolidated Financial Statements

Note 12.
Significant Estimate for Product Warranty, page 11

4.                                       We
see that you recorded a significant charge in the six months ended June 30,
2005 to establish a product warranty reserve.
In future filings, please disclose your accounting policy and
methodology used in determining your liability for product warranties.  Please also refer to the disclosure
requirements of paragraph 14 of FIN 45.

Response: In future filings we will
disclose the following accounting policy and methodology used in determining
warranty liabilities.

We provide product maintenance as
part of our service and supply agreements with customers.  When circumstances are identified whereby the
scope of service to the machine extends beyond the normal cost of our service
and supply contracts we perform a specific analysis to determine the extent of
the service required.  In accordance with
FAS 5, Accounting for Contingencies, we record warranty expense to cost of
sales once the cost is estimable and probable.

In accordance with FIN 45, Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, Aksys will
present a tabular reconciliation in future filings, as follows:

  Product Warranty

  Amount

  Balance of aggregate product warranty as of December 31,
  2004

  $

  652,000

  Aggregate reductions for costs incurred

  $

  (379,776

  )

  Aggregate changes in the liability for accruals
  recorded during the accounting period

  $

  1,261,000

  Aggregate changes in the liability for accruals
  relating to preexisting warranties (including adjustments related to changes
  in estimates)

  $

  37,699

  Balance of aggregate product warranty as of June 30,
  2005

  $

  1,570,923

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5.                                       As
a related matter, please tell us the facts and circumstances that resulted in
the establishment of a product warranty liability in 2004.  That is, please discuss why a reserve was not
deemed necessary in prior fiscal years.

Response: During the fourth quarter
of 2004 we discovered that one of our component parts did not meet our
performance requirements and began to fail.
At that time we decided that when possible we would replace this
component on certain machines already produced.  As the cost to replace the component part was
beyond the normal cost of our service and supply contracts, we established a
reserve based on the estimated cost of the replacement part for all machines
affected.

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results
of Operations

Comparison of Results of Operations

Six Months Ended June 30, 2005 Compared to Six
Months ended June 30, 2004

Revenue, page 15

6.                                       Refer
to your disclosure that explains the 50% decrease in revenue as a result of a
decrease in units sold.  Please expand in
future filings to identify and describe factors responsible for the decrease in
the number of units sold compared to the prior year.  In general, MD&A both should identify
factors responsible for changes in financial statement items and describe why
those factors arose or occurred.

Response: In future filings, we will
present within the Consolidated Statement of Operations the amount of revenue
derived from machine sales, machine rentals, and service and supplies
separately and will no longer disclose the number of individual units sold as
we consider specific pricing information to be proprietary.  We will identify and describe the factors
responsible for changes in the financial statement terms in the following
manner:

During the six months ended June 30,
2005, product revenue from units sold was $109,000, a decrease of $496,000 or
82% from the six months ended June 30, 2004.  Revenue from rentals increased 65% to
$275,000 for the six months ended June 30, 2005, from $167,000 for the
comparable period last year. Service and supply revenue was $635,000 for the
six month ended June 30, 2005, a 55% increase from $409,000 for the prior
year period.

Product revenue from units sold is
recorded when the PHD System has been installed and a patient has started
training whereas rental revenue from operating leases is recognized over the
duration of the lease, starting when the machine is installed and the patient
starts training. Changes in the number of units sold will have a more
significant impact on revenue

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than
changes in the number of rental units. We will continue to extend renting as an
option to our customers as we continue to increase market acceptance of our
product.

While there have been no material
changes to our monthly rental price over the past two years, rental revenue and
service and supply revenue has increased as our patient base has continued to
grow.  The following table shows patient
growth by quarter.

  Date

  Number of Patients

  December 31, 2003

  67

  March 31, 2004

  77

  June 30, 2004

  82

  September 30, 2004

  106

  December 31, 2004

  121

  March 31, 2005

  126

  June 30, 2005

  149

In the home hemodialysis market,
machines are typically sold or rented, and our customers expect these options. While
we have continued to increase our customer base, many customers prefer not to
make the capital investment required to purchase our machine. There is also
increased competition in the home hemodialysis market, which contributes to the
increase in rentals and decrease in sales of our machine.  In an effort to gain market acceptance of our
relatively new product, we allow customers to rent our machine. The expectation
is that over time some of these rentals may convert to sales.

Cost of Sales, page 16

7.                                                               We
see that you recorded a $1.4 million charge during the six months ended June 30,
2005 related to the impairment of leased assets.  Please tell us and disclose in future filings
the specific events or circumstances that resulted in your decision to replace
the older models in December 2006.
Please also clarify whether the impaired rental machines will be sold or
otherwise disposed.

Response: In the fourth quarter of
2004 we decided to replace a component in certain machines already in
service.  At that time we knew that
certain older machines could not be retrofitted with the new stainless steel component
without significant modification to the machine.  We began to investigate the cost associated
with retrofitting the older machines and during the first quarter of 2005
decided it was cost prohibitive. We estimated when each machine with the
existing plastic component would be taken out of service based on the remaining

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inventory
of plastic component parts as well as the expected date of future enhancements
to the PHD System, which would result in a newer version of the machine.

Since we determined that the
machines would be disposed before the end of their previously estimated useful
life, we tested the asset group for recoverability. We analyzed the
undiscounted cash flows expected from these rental machines over their
remaining life, and determined that the total was less than the carrying amount
of the asset group.   The impairment
charge is the difference between the carrying amount and the discounted cash
flows expected over the asset group’s remaining life.  The new asset value is being amortized over
the remaining life.

The impaired rental machines, which
will be taken out of service and replaced with a newer model of the machine,
will be disposed, as they have no resale or residual value.

8.                                                               We
note your use of the non-GAAP measure “cost of sales excluding impairment,
warranty reserve and obsolescence reserve.”
This measure does not appear to comply with the guidance provided in SEC
Rule 34-47226 - Conditions for Use of Non-GAAP Financial measures or the
Staff’s FAQ Regarding the use of Non-GAAP Financial Measures since they appear
to exclude recurring items.  Please
revise future filings beginning with your next Form 10-Q to remove this
measure.  Please refer to Questions 8 and
9 of the FAQ.

Response:  We will remove this measure from future
filings.   In future filings we will discuss this issue in
the following manner:

Product cost of sales was
$5,572,000 for the six months ended June 30, 2005, an increase of
$3,341,000 or 150% from $2,231,000 for the comparable period of 2004.  An
impairment charge of $1,370,000 was recorded in the first six months of 2005 to
adjust the carrying amount of certain rental machines to fair value.  In
addition, in the second quarter of 2005 we recorded a product warranty reserve
for $1,262,000 and an increase to the reserve for expected obsolescence of
parts purchased by the manufacturer of the PHD system of $1,038,000.  The impairment
charge, product warranty reserve and reserve for expected obsolescence of parts
are included in product cost of sales and are the primary reasons for the
increase in cost of sales along wit