<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

(Mark One)

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

        For the quarterly period ended September 30, 1997

                                       OR

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

        For the transition period from ________ to ________

                         Commission File Number 0-28402

                               ARADIGM CORPORATION
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                               <C>       
                          California                                         94-3133088
----------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
</TABLE>


                   26219 Eden Landing Road, Hayward, CA 94545
           (Address of principal executive offices including zip code)


                                 (510) 783-0100
              (Registrant's telephone number, including area code)


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



        Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

         Common Stock, no par value                   10,227,069 shares
         --------------------------           ---------------------------------
                   (Class)                    (Outstanding at October 31, 1997)


<PAGE>   2
                               ARADIGM CORPORATION


                                      INDEX

                          PART I. FINANCIAL INFORMATION


ITEM 1.   FINANCIAL STATEMENTS                                          Page No.

Statements of Operations (Unaudited)

          Three months ended September 30, 1997 and 1996                   3

          Nine months ended September 30, 1997 and 1996                    4

Balance Sheets

          September 30, 1997 (Unaudited) and December 31, 1996             5

Statements of Cash Flows (Unaudited)

          Nine months ended September 30, 1997 and 1996                    6

Notes to Unaudited Financial Statements                                    7

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS                    10


                           PART II. OTHER INFORMATION


ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS                        13

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS              14

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                                 14

          Signatures                                                       15

          Exhibits                                                         16


                                       2
<PAGE>   3
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


                               ARADIGM CORPORATION

                            STATEMENTS OF OPERATIONS
             (In thousands, except share and per share information)


<TABLE>
<CAPTION>
                                                Three months ended
                                                  September 30,
                                        -----------------------------------
                                            1997                   1996
                                        ------------           ------------
<S>                                     <C>                    <C>         
                                                    (unaudited)

Contract revenues                       $        894           $         57
Expenses:
    Research and development                   3,483                  2,123
    General and administrative                 1,967                    711
                                        ------------           ------------
Total expenses                                 5,450                  2,834

                                        ------------           ------------
Loss from operations                          (4,556)                (2,777)

Interest income                                  265                    456
Interest expense                                 (35)                   (17)
                                        ------------           ------------
Net loss                                $     (4,326)          $     (2,338)
                                        ============           ============

Net loss per share                      $      (0.42)          $      (0.23)
                                        ------------           ------------

Shares used in computation
  of net loss per share                   10,212,517             10,216,820
                                        ============           ============
</TABLE>


                             See accompanying notes.


                                       3
<PAGE>   4
                               ARADIGM CORPORATION

                            STATEMENTS OF OPERATIONS
             (In thousands, except share and per share information)


<TABLE>
<CAPTION>
                                                 Nine months ended
                                                   September 30,
                                        -----------------------------------
                                            1997                   1996
                                        ------------           ------------
<S>                                     <C>                    <C>         
                                                  (unaudited)

Contract revenues                       $      1,634           $        230
Expenses:
    Research and development                   9,281                  4,912
    General and administrative                 4,409                  2,091
                                        ------------           ------------
Total expenses                                13,690                  7,003

                                        ------------           ------------
Loss from operations                         (12,056)                (6,773)

Interest income                                  989                    745
Interest expense                                 (71)                   (40)
                                        ------------           ------------
Net loss                                $    (11,138)          $     (6,068)
                                        ============           ============

Net loss per share                      $      (1.09)          $      (0.93)
                                        ------------           ------------

Shares used in computation
  of net loss per share                   10,207,750              6,518,003
                                        ============           ============
</TABLE>


                             See accompanying notes.


                                       4
<PAGE>   5
                               ARADIGM CORPORATION

                                 BALANCE SHEETS
                    (In thousands, except share information)


<TABLE>
<CAPTION>
                                                            September 30,           December 31,
                                                                 1997                    1996
                                                            -------------           -------------
<S>                                                         <C>                     <C>          
Assets                                                       (unaudited)
Current assets:
    Cash and cash equivalents                               $      11,341           $      18,554
    Short-term investments                                          4,417                   6,978
    Receivables                                                     1,110                       -
    Inventories                                                       188                       -
    Other current assets                                              677                     451
                                                            -------------           -------------
      Total current assets                                         17,733                  25,983
Investments                                                             -                   3,002
Property and equipment, net                                         3,370                   1,453
Notes receivable from officers                                        220                     220
Other assets                                                           79                      75
                                                            -------------           -------------
        Total assets                                        $      21,402           $      30,733
                                                            =============           =============
Liabilities and shareholders' equity
Current liabilities:
    Accounts payable                                        $         561           $         601
    Accrued clinical and other studies                                  -                     899
    Accrued compensation                                              978                     280
    Other accrued liabilities                                         654                     279
    Deferred revenue                                                    -                     169
    Current portion of capital lease
      obligations and equipment loans                               1,324                     269
                                                            -------------           -------------
        Total current liabilities                                   3,517                   2,497
Noncurrent portion of capital lease
    obligations and equipment loans                                   774                     350
Commitments
Shareholders' equity:
    Common stock, no par value, 40,000,000
      shares authorized; issued and
      outstanding shares: September 30,
      1997 - 10,227,069; December 31, 1996                         49,976                  49,821
      - 10,214,054
Notes receivable from shareholders                                   (422)                   (483)
Deferred compensation                                                (154)                   (308)
Accumulated deficit                                               (32,289)                (21,144)
                                                            -------------           -------------
        Total shareholders' equity                                 17,111                  27,886
                                                            -------------           -------------
        Total liabilities and shareholders' equity          $      21,402           $      30,733
                                                            =============           =============
</TABLE>


                             See accompanying notes.


                                       5
<PAGE>   6
                               ARADIGM CORPORATION

                            STATEMENTS OF CASH FLOWS
                Increase (decrease) in cash and cash equivalents
                                 (In thousands)


<TABLE>
<CAPTION>
                                                               Nine months ended
                                                                 September 30,
                                                          -----------------------------
                                                             1997                1996
                                                          ---------           ---------
<S>                                                       <C>                 <C>       
                                                                   (unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                $ (11,138)          $  (6,068)
  Adjustments to reconcile net loss to
  cash used in operating activities
    Depreciation and amortization                               472                 265
    Amortization of deferred compensation                       154                 135
    Changes in assets and liabilities
      Receivables                                            (1,110)                260
      Inventories and other current assets                     (414)               (269)
      Other assets                                               (4)                 (7)
      Accounts payable                                          (40)              1,040
      Accrued liabilities                                       174                 284
      Deferred revenue                                         (169)               (230)
                                                          ---------           ---------
Cash used in operating activities                           (12,075)             (4,590)
                                                          ---------           ---------
CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures                                       (2,132)               (373)
  Purchases of investments                                  (19,163)           (123,874)
  Proceeds from maturities of investments                    24,719             117,608
                                                          ---------           ---------
Cash (used in) provided by investing activities               3,424              (6,639)
                                                          ---------           ---------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of common stock, net                   164              24,609
  Proceeds from repayment of shareholder notes                   52                   -
  Notes receivable from officers                                  -                 (21)
  Proceeds from notes payable                                 1,437                   -
  Payments on lease obligations and notes payable              (215)               (212)
                                                          ---------           ---------
Cash provided by financing activities                         1,438              24,376
                                                          ---------           ---------
Net (decrease) increase in cash and cash                     (7,213)             13,147
equivalents
Cash and cash equivalents at beginning of period             18,554              12,117
                                                          ---------           ---------
Cash and cash equivalents at end of period                $  11,341           $  25,264
                                                          =========           =========


SUPPLEMENTAL INVESTING AND FINANCING ACTIVITIES
  Common stock issued in exchange for notes receivable    $       -           $     287
  
  Common stock repurchased upon cancellation of  notes
    receivable                                            $       9           $       -
  Acquisition of equipment under capital leases           $     257           $     330
</TABLE>


                             See accompanying notes.


                                       6
<PAGE>   7
                               ARADIGM CORPORATION

                   NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
                               September 30, 1997


1.  Summary of Significant Accounting Policies

Organization and Description of Business
Aradigm Corporation (the "Company") was incorporated in the State of California
on January 30, 1991. Through June 30, 1997, prior to the signing of the
Company's collaborative agreement with SmithKline Beecham, the Company was in
the development stage. Since inception, Aradigm has been engaged in the
development and commercialization of non-invasive pulmonary drug delivery
systems.

The Company expects continuing losses over the next several years as development
efforts continue. Management plans to continue to finance the Company primarily
through issuances of equity securities, research and development contract
revenue, capital lease financing, and in the longer term, revenue from product
sales. If the financing arrangements contemplated by management are not
consummated, the Company may have to seek other sources of capital or reevaluate
operating plans.

Basis of Presentation
The financial information at September 30, 1997 and for the three- and
nine-month periods ended September 30, 1997 and 1996 is unaudited but includes
all adjustments (consisting only of normal recurring adjustments) that the
Company considers necessary for fair presentation of the financial position at
such date and the operating results and cash flows for those periods. Results
for the interim periods are not necessarily indicative of the results for the
entire year. The accompanying financial statements should be read in conjunction
with the Company's audited financial statements for the year ended December 31,
1996, included in the Company's Form 10-K filed with the SEC on March 28, 1997.

Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

Cash Equivalents and Investments
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. The Company places its
cash and cash equivalents in money market funds, commercial paper and corporate
master notes. The Company's short-term investments consist of corporate notes
with maturities ranging from three to twelve months.

The Company classifies its investments as available-for-sale. Available-for-sale
investments are recorded at fair value with unrealized gains and losses reported
in the statement of shareholders' equity. Fair values of investments are based
on quoted market prices, where available. Realized gains and losses, which have
been immaterial to date, are included in interest and other income and are
derived using the specific identification method for determining the cost of
investments sold. Dividend and interest income is recognized when earned.

Revenue Recognition
Contract revenues consist of revenue from collaboration agreements and
feasibility studies. The Company recognizes revenue ratably under the agreements
as costs are incurred. Deferred revenue represents the portion of research
payments received that has not been earned. In accordance with contract terms,
up-front and milestone payments from collaborative research agreements are
considered reimbursements for costs incurred under the agreements and,
accordingly, are generally deferred when received and recognized as revenue
based on actual efforts expended over the remaining terms of the agreements.
Non-refundable signing or license fee payments that are not dependent on future
performance under collaborative 


                                       7
<PAGE>   8
agreements are recognized as revenue when received. Costs of contract revenue
approximate such revenue and are included in research and development expenses.

Net Loss Per Share
Net loss per share is computed using the weighted average number of shares of
common stock outstanding. Common equivalent shares from stock options and
warrants are excluded from the computation as their effect is antidilutive,
except that, pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, common and common equivalent shares issued at prices below the
Company's June 20, 1996 initial public offering price during the 12-month period
prior to the offering have been included in the calculation as if they were
outstanding for all periods through the offering (using the treasury stock
method and the initial public offering price).

As described above, the antidilutive effect of certain stock options is included
in the calculation of loss per share for all periods through June 20, 1996, but
is excluded from the calculation after that date. Pro forma per share data is
provided to show the calculation on a consistent basis for 1997 and 1996. It has
been computed as described above, but includes the retroactive effect from the
date of issuance of the conversion of convertible preferred stock to common
shares upon the closing of the Company's initial public offering.

Pro forma per share information calculated on the above basis is as follows:

<TABLE>
<CAPTION>
                                                  Three Months Ended                        Nine Months Ended
                                                      September 30,                           September 30,
                                              ------------------------------          -------------------------------
                                                 1997                1996                1997                1996
                                              ----------          ----------          ----------          -----------
<S>                                           <C>                 <C>                 <C>                 <C>              
Pro forma net loss per share                  $    (0.42)         $    (0.23)         $    (1.09)         $     (0.69)
                                              ==========          ==========          ==========          ===========

Shares used in computation
     of pro forma net loss per share          10,212,517          10,216,820          10,207,750            8,853,648
                                              ==========          ==========          ==========          ===========
</TABLE>


In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share", which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is not expected to result in a change
in net loss per share for the periods ended September 30, 1997 and September 30,
1996.

Collaborative Agreements
In December 1996, the Company entered into a feasibility agreement with a
pharmaceutical company to determine the feasibility of using the Company's
AERx(TM) Pulmonary Drug Delivery System for the delivery of a specified drug.
The agreement provides for a $169,500 research and development payment and a
$237,500 payment upon acceptance by the pharmaceutical company of certain
specified deliverables. Under this agreement, total revenues of $407,000 were
recognized in 1997.

Subsequent Events
In September 1997, the Company entered into a product development and
commercialization agreement with SmithKline Beecham covering use of the AERx
Pain Management System for the delivery of opiates and opioids. The Company and
SmithKline Beecham will collaborate on the development of the products within
this field. Under the terms of this agreement, SmithKline Beecham has been
granted worldwide sales and marketing rights to the AERx Pain Management System
for use with such analgesics, and Aradigm retains all manufacturing rights. If
this system receives regulatory approval, the Company expects to sell devices
and drug packets to SmithKline Beecham and to receive royalties on sales by
SmithKline Beecham.


                                       8
<PAGE>   9
Pursuant to the SmithKline Beecham agreement, the Company could receive
approximately $30 million in milestone and product development payments and $10
million in equity investments if and when the first product from the
collaboration is commercialized. In October 1997, the Company received $14
million from SmithKline Beecham under the agreement, of which $5 million
resulted from the sale of shares of Aradigm Common Stock. Additional milestone
and product development payments will be paid if Aradigm and SmithKline Beecham
decide to jointly develop additional AERx products which incorporate other
opiates or opioids. Through September 30, 1997, the Company has recognized total
contract revenue of $617,000 under this agreement.


                                       9
<PAGE>   10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

        The discussion below contains forward-looking statements that are based
on the beliefs of the Company's management, as well as assumptions made by, and
information currently available to, the Company's management. The Company's
future results, performance or achievements could differ materially from those
expressed in, or implied by, any such forward-looking statements as a result of
certain factors, including, but not limited to, those discussed in this section
as well as in the section entitled "Risk Factors" and elsewhere in the Company's
Form 10-K filed with the Securities and Exchange Commission on March 28, 1997.

        Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly release the
results of any revision to these forward-looking statements which may be made to
reflect events or circumstances occurring after the date hereof or to reflect
the occurrence of unanticipated events.

OVERVIEW

        Since its inception in 1991, Aradigm has been engaged in the development
of pulmonary drug delivery systems. As of September 30, 1997, the Company had an
accumulated deficit of $32.3 million. The Company has been unprofitable since
inception and expects to incur additional operating losses over at least the
next several years as the Company's research and development efforts,
preclinical and clinical testing activities and manufacturing scale-up efforts
expand and as the Company plans and builds its late-stage clinical and early
commercial production capabilities. To date, Aradigm has not sold any products
and does not anticipate receiving significant revenue from products in 1997. The
sources of working capital have been equity financing, financing of equipment
acquisitions, interest earned on investments of cash and revenues from research
and feasibility agreements and development contracts.

RESULTS OF OPERATIONS

        Three and Nine Months Ended September 30, 1997 and 1996

        Contract Revenue. Contract revenue for the three-month period ended
September 30, 1997 increased to $894,000 from $57,000 for the same period in
1996. Contract revenue for the nine-month period ended September 30, 1997
increased to $1.6 million from $230,000 for the same period in 1996. The
increase in revenue was due primarily to the development and commercialization
agreement that was executed with SmithKline Beecham in September 1997 to develop
and commercialize a pulmonary delivery system for providing breakthrough pain
relief using opiates and opioids. Under the terms of the agreement, Aradigm
could receive up to approximately $30 million in milestone and development
payments if and when the first product is commercialized. Additional milestone
and development payments would be paid if SmithKline Beecham and Aradigm decide
to develop additional opiates and opioids for delivery with the AERx Pain
Management System. In exchange, SmithKline Beecham will have exclusive worldwide
commercial rights to the AERx Pain Management System for use with opiates and
opioids. Aradigm will be the manufacturer of all the products covered by the
agreement and will also receive royalties on net sales. Costs associated with
research and development activities attributable to the agreement are expected
to approximate the revenue recognized.

        Contract revenues are expected to fluctuate from year to year and future
contract revenues cannot be predicted accurately. Contract revenues depend in
part upon future success in obtaining new collaborative agreements, timely
completion of feasibility studies, the continuation of existing collaborations
and achievement of milestones under current and future agreements. Nevertheless,
the Company expects higher contract revenues in 1998 as it continues its
activities under collaborative development agreements.

        Research and Development Expenses. Research and development expenses for
the three-month period ended September 30, 1997 increased to $3.5 million from
$2.1 million for the same period in 1996. 


                                       10
<PAGE>   11
Research and development expenses for the nine-month period ended September 30,
1997 increased to $9.3 million from $4.9 million for the same period in 1996.
The increase was attributable primarily to hiring of additional scientific
personnel and expenses associated with the expansion of research and development
efforts on the AERx and SmartMist systems. These expenses represent proprietary
research expenses as well as the costs related to contract research revenue and
include salaries and benefits of scientific and development personnel,
laboratory supplies, consulting services and the expenses associated with the
development of manufacturing processes. The Company expects research and
development spending to increase significantly over the next few years as the
Company continues to expand its research and development activities to support
current and potential future collaborations and initiates commercial
manufacturing of the AERx system.

        General and Administrative Expenses. General and administrative expenses
for the three-month period ended September 30, 1997 increased to $2.0 million
from $711,000 for the same period in 1996. General and administrative expenses
for the nine-month period ended September 30, 1997 increased to $4.4 million
from $2.1 million for the same period in 1996. The increase was attributable
primarily to support of the Company's increased research efforts including
facilities expense, administrative staffing, business development and marketing
activities. The Company expects to incur greater general and administrative
expenses in the future as it expands its operations, increases its efforts to
develop collaborative relationships with corporate partners and expands its
SmartMist marketing effort.

        Interest Income. Interest income for the three-month period ended
September 30, 1997 decreased to $265,000 from $456,000 for the same period in
1996. Average cash and investment balances, and interest income earned thereon,
were higher during the three-month period ending September 1996 which included
the proceeds from the sale of common shares in the Company's June 1996 initial
public offering. Interest income for the nine-month period ended September 30,
1997 increased to $989,000 from $745,000 for the same period in 1996 as a result
of higher average cash and investment balances for the nine-month period ending
September 1997.

        Interest Expense. Interest expense for the three-month period ended
September 30, 1997 increased to $35,000 from $17,000 for the same period in
1996. Interest expense for the nine-month period ended September 30, 1997
increased to $71,000 from $40,000 for the same period in 1996. These increases
resulted from higher outstanding capital lease and equipment loan balances under
the Company's equipment lines of credit.

LIQUIDITY AND CAPITAL RESOURCES

        The Company has financed its operations since inception primarily
through private placements and public offerings of its capital stock, proceeds
from financings of equipment acquisitions, contract research revenue and
interest earned on investments. As of September 30, 1997, the Company had
received approximately $49.1 million in net proceeds from sales of its capital
stock. The Company also has a $5.0 million equipment line of credit, of which
approximately $3.6 million remains available for purchases through September
1998. As of September 30, 1997, the Company had cash, cash equivalents and
investments of approximately $15.8 million.

        In October 1997, the Company received from SmithKline Beecham a $9.0
million milestone payment and a $5.0 million equity investment. Pursuant to the
terms of a stock purchase agreement, the Company also has the right to receive,
at its discretion and subject to certain limitations, an additional $5.0 million
equity investment from SmithKline Beecham. As of October 31, 1997, the Company
had cash, cash equivalents and investments of approximately $28.5 million.

        Net cash used in operating activities in the nine months ending
September 30, 1997, was $12.1 million compared to $4.6 million in 1996. The
increase resulted primarily from the increase in the net loss of $5.1 million,
net decreases in accrued liabilities and increases in current assets.

        Net cash provided by investing activities in the nine months ending
September 30, 1997, was $3.4 million compared to $6.6 million used in 1996. The
increase resulted primarily from cash receipts from the maturity of investments
partially offset by expenditures made for capital equipment.


                                       11
<PAGE>   12
        Net cash provided by financing activities in the nine months ending
September 30, 1997 of $1.4 million resulted primarily from the receipt of
proceeds from equipment loans and issuances of common stock partially offset by
repayment of capital lease obligations. Net cash provided by financing
activities in the nine months ending September 30, 1996 of $24.4 million was due
primarily to the receipt of net proceeds from the Company's initial public
offering.

        The development of the Company's technology and proposed products will
require a commitment of substantial funds to conduct the costly and
time-consuming research and preclinical and clinical testing activities
necessary to develop and refine such technology and proposed products and to
bring any such products to market. The Company's future capital requirements
will depend on many factors, including continued progress in the research and
development of the Company's technology and drug delivery systems, the ability
of the Company to establish and maintain favorable collaborative arrangements
with others, progress with preclinical studies and clinical trials, the time and
costs involved in obtaining regulatory approvals, the cost of development and
the rate of scale-up of the Company's production technologies, the cost involved
in preparing, filing, prosecuting maintaining and enforcing patent claims and
the need to acquire licenses or other rights to new technology.

        The Company anticipates that its existing capital resources, anticipated
payments from its existing corporate partnership with SmithKline Beecham and
projected interest income will enable the Company to maintain current and
planned operations through 1998. However, there can be no assurance that the
Company will not need to raise substantial additional capital to fund its
operations prior to such time. There can be no assurance that additional
financing will be available on acceptable terms or at all. The Company's cash
requirements, however, may vary materially from those now planned because of
results of research and development efforts, including capital expenditures and
funding preclinical and clinical trials, manufacturing scale-up in connection
with the commercialization of the SmartMist system, and manufacturing capacity
for preclinical, clinical and full scale manufacturing requirements of the AERx
system. The Company may seek additional funding through collaborations or
through public or private equity or debt financings. However, there cannot be
any assurance that additional financing can be obtained on acceptable terms, or
at all. If additional funds are raised by issuing equity securities, dilution to
shareholders may result. If adequate funds are not available, the Company may be
required to delay, to reduce the scope of, or to eliminate one or more of its
research and development programs, or to obtain funds through arrangements with
collaborative partners or other sources that may require the Company to
relinquish rights to certain of its technologies or products that the Company
would not otherwise relinquish.


                                       12
<PAGE>   13
PART II OTHER INFORMATION

ITEM 2.     CHANGES IN SECURITIES AND USE OF PROCEEDS

            Use of Proceeds

            (1)   The effective date of the Company's registration statement
                  filed on Form S-1 (SEC file number 0-28402) (the "Registration
                  Statement") for which the following information is being
                  disclosed is June 20, 1996.

            (2)   The Company's initial public offering pursuant to the
                  above-referenced registration statement commenced on June 20,
                  1996 (the "Offering").

            (3)   The Offering did not terminate before any securities were
                  sold.

            (4)   (i)   The Offering has not terminated.

                  (iii) The managing underwriters were Cowen & Company, CIBC
                        Oppenheimer Corp. and Invemed Associates, Inc.

                  (iv)  The Offering was for Common Stock of the Company.

                  (v)   Pursuant to the Offering, the Company registered and
                        sold 2,500,000 shares of Common Stock with an aggregate
                        offering price of the amount registered and sold of
                        $27,500,000.

                  (vi)  Following are the amount of expenses incurred (a) from
                        the effective date of the Registration Statement to the
                        ending period of the reporting period and (b) for the
                        Registrant's account in connection with the issuance and
                        distribution of the Common Stock pursuant to the
                        Offering:

                        Underwriting discounts and commissions        $1,925,000
                        Finders' Fees                                       None
                        Expenses paid to or for underwriters                None
                        Other expenses                                   983,412
                                                                      ----------
                        Total expenses                                $2,908,412

                  (vi)  The net offering proceeds to the Company, after
                        deducting the total expenses above, were $24,591,588.

                  (vii) Following are the uses, including amounts, of the net
                        offering proceeds from the effective date of the
                        Registration Statement to the ending period of the
                        reporting period:

                        Employee wages and benefits                   $8,287,072
                        Office space and utilities                     1,880,770
                        Scientific supplies and equipment              1,878,770
                        Travel and conferences                           934,984
                        Clinical trials and contracts                  4,224,484
                        Professional services                          1,906,043

                        Temporary investments:
                           Commercial paper                            5,479,301

                        Other purposes                                      None


                                       13
<PAGE>   14
                        All of the foregoing uses were direct or indirect
                        payment to others.

                  (vii) The use of proceeds described in (vii) above does not
                        represent a material change in the use of proceeds
                        described in the prospectus.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

            None.


ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K.

            (a)   Exhibits

            10.1(1) Stock Purchase Agreement, September 30, 1997, between the
                    Company and SmithKline Beecham.

            10.2(1) Product Development and Commercialization Agreement, dated
                    September 30, 1997, between the Company and SmithKline
                    Beecham.

            11.1    Statement Regarding Computation of Net Loss Per Share

            27.1    Financial Data Schedule

            (b)   Reports on Form 8-K.

                    The Company filed a Current Report on Form 8-K on or about
                    November 7, 1997. On September 30, 1997, the Company entered
                    into a Product Development and Commercialization Agreement
                    (the "Agreement") with SmithKline Beecham PLC ("SmithKline")
                    for the purpose of developing and commercializing a
                    pulmonary drug delivery system for providing immediate pain
                    relief using opiates and opioids. In connection with the
                    Agreement, the Company entered into a Stock Purchase
                    Agreement with SmithKline, pursuant to which the Company
                    sold and issued 405,064 shares of the Company's Common Stock
                    to SmithKline at an aggregate purchase price of
                    $5,000,008.75.


      (1)   Incorporated by reference to the indicated exhibit in the Company's
            Current Report on Form 8-K filed on or about November 7, 1997.


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                                    SIGNATURE


Pursuant to the requirements 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.

Dated:  November 10, 1997

                                    ARADIGM CORPORATION
                                    (Registrant)



                                    --------------------------------------------
                                    Mark A. Olbert
                                    Vice President, Finance and Administration
                                    and Chief Financial Officer


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                               ARADIGM CORPORATION
                                    FORM 10-Q
                                INDEX TO EXHIBITS



Exhibit Number  Description
--------------  -----------

10.1(1)         Stock Purchase Agreement, September 30, 1997, between the
                Company and SmithKline Beecham.

10.2(1)         Product Development and Commercialization Agreement, dated
                September 30, 1997, between the Company and SmithKline Beecham.

11.1            Statement Regarding Computation of Net Loss Per Share

27.1            Financial Data Schedule


(1)   Incorporated by reference to the indicated exhibit in the Company's
Current Report on Form 8-K filed on or about November 7, 1997.


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