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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2011
 or
 o
    
    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: 000-28402
 Aradigm Corporation
 (Exact name of registrant as specified in its charter)
 California
    
    94-3133088(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 3929 Point Eden Way
Hayward, CA 94545  (Address of principal executive offices including zip code)
 (510) 265-9000  (Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ
  (Class)
    
    
    (Outstanding at May 9, 2011)Common
    
    
    
    172,785,353




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##### 



ARADIGM CORPORATION
 TABLE OF CONTENTS
 Page
 Cautionary Note Regarding Forward-Looking Statements
    
    
    13PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Balance Sheets at March 31, 2011 and December 31, 2010 (unaudited)
    
    
    3Condensed Statements of Operations for the three months ended March 31, 2011 and 2010 (unaudited)
    
    
    4Condensed Statements of Cash Flows for the three months ended March 31, 2011 and 2010 (unaudited)
    
    
    5Notes to the Unaudited Condensed Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3. Defaults Upon Senior Securities
    
    
    30Item 4. (Removed and Reserved)
    
    
    30Item 5. Other Information
    
    
    30Item 6. Exhibits
    
    
    31Signatures
    
    
    32EX-31.1EX-31.2EX-32.1
  2




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PART I. FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 ARADIGM CORPORATION
 
 CONDENSED BALANCE SHEETS
 (In thousands, except share data)
 March 31,
    
    
    December 31,2011
    
    
    2010(Unaudited)
    
    
    (Note 1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,591
    
    
    $
    5,295Short-term investments
    
    
    501
    
    
    
    251Receivables
    
    
    75
    
    
    
    180Prepaid and other current assets
    
    
    181
    
    
    
    180Total current assets
    
    
    3,348
    
    
    
    5,906Property and equipment, net
    
    
    1,431
    
    
    
    1,553Notes receivable
    
    
    55
    
    
    
    54Other assets
    
    
    113
    
    
    
    115Total assets
    
    $
    4,947
    
    
    $
    7,628LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    190
    
    
    $
    257Accrued clinical and cost of other studies
    
    
    514
    
    
    
    993Accrued compensation
    
    
    318
    
    
    
    327Facility lease exit obligation
    
    
    104
    
    
    
    99Other accrued liabilities
    
    
    585
    
    
    
    450Total current liabilities
    
    
    1,711
    
    
    
    2,126Deferred rent
    
    
    110
    
    
    
    99Facility lease exit obligation, non-current
    
    
    703
    
    
    
    729Other non-current liabilities
    
    
    75
    
    
    
    75Total liabilities
    
    
    2,599
    
    
    
    3,029Commitments and contingenciesShareholders equity:Preferred stock, 5,000,000 shares authorized, none outstanding
    
    
    
    
    
    
    Common stock, no par value; authorized shares: 213,527,214 at
March 31, 2011 and December 31, 2010; issued and outstanding
shares: 172,304,235 at March 31, 2011 and December 31, 2010
    
    
    358,620
    
    
    
    358,424Accumulated deficit
    
    
    (356,272
    )
    
    
    (353,825
    )Total shareholders equity
    
    
    2,348
    
    
    
    4,599Total liabilities and shareholders equity
    
    $
    4,947
    
    
    $
    7,628
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ARADIGM CORPORATION
 
 CONDENSED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 (Unaudited)
 Three months endedMarch 31,2011
    
    
    2010Revenue:Royalty revenue
    
    $
    182
    
    
    $
    4,000Operating expenses:Research and development
    
    
    1,480
    
    
    
    2,837General and administrative
    
    
    1,135
    
    
    
    1,253Restructuring and asset impairment
    
    
    10
    
    
    
    13Total operating expenses
    
    
    2,625
    
    
    
    4,103Loss from operations
    
    
    (2,443
    )
    
    
    (103
    )Interest income
    
    
    2
    
    
    
    10Interest expense
    
    
    (7
    )
    
    
    (109
    )Other income (expense)
    
    
    1
    
    
    
    (2
    )Net loss
    
    $
    (2,447
    )
    
    $
    (204
    )Basic and diluted net loss per common share
    
    $
    (0.01
    )
    
    $
    (0.00
    )Shares used in computing basic and diluted net loss per common share
    
    
    170,135
    
    
    
    99,872
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ARADIGM CORPORATION
 
 CONDENSED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Three months endedMarch 31,2011
    
    
    2010Cash flows from operating activities:Net loss
    
    $
    (2,447
    )
    
    $
    (204
    )Adjustments to reconcile net loss to cash used in operating activities:Amortization and accretion of investments
    
    
    
    
    
    
    15Depreciation and amortization
    
    
    127
    
    
    
    165Stock-based compensation expense
    
    
    188
    
    
    
    261Cost of warrants and options for services
    
    
    2
    
    
    
    Changes in operating assets and liabilities:Receivables
    
    
    105
    
    
    
    (69
    )Prepaid and other current assets
    
    
    5
    
    
    
    (46
    )Restricted cash
    
    
    
    
    
    
    Other assets
    
    
    1
    
    
    
    2Accounts payable
    
    
    (67
    )
    
    
    194Accrued compensation
    
    
    (9
    )
    
    
    (59
    )Other liabilities
    
    
    (344
    )
    
    
    (438
    )Deferred rent
    
    
    11
    
    
    
    (6
    )Deferred revenue
    
    
    
    
    
    
    Facility lease exit obligation
    
    
    (21
    )
    
    
    (62
    )Net cash used in operating activities
    
    
    (2,449
    )
    
    
    (247
    )Cash flows from investing activities:Capital expenditures
    
    
    (5
    )
    
    
    Purchases of short-term investments
    
    
    (250
    )
    
    
    Proceeds from sales and maturities of short-term investments
    
    
    
    
    
    
    2,205Net cash provided by (used in) investing activities
    
    
    (255
    )
    
    
    2,205Cash flows from financing activities:
    
    
    
    
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    (2,704
    )
    
    
    1,958Cash and cash equivalents at beginning of period
    
    
    5,295
    
    
    
    3,903Cash and cash equivalents at end of period
    
    $
    2,591
    
    
    $
    5,861
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ARADIGM CORPORATION
 
 NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
 March 31, 2011
 1. Organization, Basis of Presentation and Liquidity
 Organization
  Basis of Presentation
   Liquidity
   2. Summary of Significant Accounting Policies
 Use of Estimates
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Cash and Cash Equivalents
  Investments
  Property and Equipment
  Impairment of Long-Lived Assets
 Property, Plant, and
Equipment  Overall
 Accounting for Costs Associated with Exit or Disposal Activities
 Exit or Disposal Cost Obligations
  Revenue Recognition
 Revenue Recognition Revised and Updated , Revenue Recognition-Multiple Elements.
  7




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Research and Development
  Stock-Based Compensation
 Compensation-Stock Compensation Equity-Equity Based Payments to Non-Employees
 Income Taxes
   8




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Net Loss Per Common Share
  Recently Issued Accounting Pronouncements
 Milestone Method of Revenue Recognition a consensus of the FASB Emerging
Issues Task Force.
 Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements
 3. Cash, Cash Equivalents and Short-Term Investments
   4. Fair Value Measurements
 Fair Value Measurements
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Fair Value Measurements at Reporting Date UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantBalance
    
    
    Identical
    
    
    Observable
    
    
    UnobservableMarch 31,
    
    
    Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2011
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Cash and cash equivalents
    
    $
    2,591
    
    
    $
    1,094
    
    
    $
    1,497
    
    
    $
    Short-term investments:Commercial paper
    
    $
    250
    
    
    $
    
    
    
    $
    250
    
    
    $
    U.S. treasury and agencies
    
    
    251
    
    
    
    
    
    
    
    251
    
    
    
    Total
    
    $
    501
    
    
    $
    
    
    
    $
    501
    
    
    $
    
  5. Sublease Agreement and Lease Exit Liability
    Three Months EndedMarch 31,  2011Balance at January 1, 2011
    
    $
    828Accretion expense
    
    
    10Lease payments
    
    
    (31
    )Balance at March 31, 2011
    
    $
    807
  6. Other Liabilities
  Mar 31
    
    
    Dec 312011
    
    
    2010Other accrued liabilities:Accrued expense for services
    
    $
    511
    
    
    $
    413Payroll withholding liabilities
    
    
    74
    
    
    
    37Total other accrued liabilities
    
    $
    585
    
    
    $
    450Other non-current liabilities:Deposits
    
    $
    75
    
    
    $
    75Total other non-current liabilities
    
    $
    75
    
    
    $
    75
  10




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7. Collaborations and Licensing Agreements
 Zogenix
  8. Stock-Based Compensation and Stock Options and Awards
  March 31,
    
    
    March 31,2011
    
    
    2010Costs and expenses:Research and development
    
    $
    64
    
    
    $
    51General and administrative
    
    
    124
    
    
    
    210Total stock-based compensation expense
    
    $
    188
    
    
    $
    261
    Stock Option Plans: 1996 Equity Incentive Plan, 2005 Equity Incentive Plan and 1996
Non-Employee Directors Plan
  Stock Option Activity
  11




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Options OutstandingWeightedShares Available
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Averagefor Grant of
    
    
    Number of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ExerciseOption or Award
    
    
    Shares
    
    
    Exercise Price Range
    
    
    PriceBalance at January 1, 2011
    
    
    1,959,278
    
    
    
    6,354,758
    
    
    $
    0.12
    
    
    
    
    
    
    $
    64.69
    
    
    $
    1.32Options authorized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options granted
    
    
    (100,000
    )
    
    
    100,000
    
    
    
    0.18
    
    
    
    
    
    
    
    0.18
    
    
    
    0.18Options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options cancelled
    
    
    35,022
    
    
    
    (35,022
    )
    
    $
    0.25
    
    
    
    
    
    
    $
    64.69
    
    
    $
    15.70Restricted share awards granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted share awards cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Plan shares cancelled and not reauthorized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at March 31, 2011
    
    
    1,894,300
    
    
    
    6,419,736
    
    
    $
    0.12
    
    
    
    
    
    
    $
    34.00
    
    
    $
    1.22
   Number
    
    
    Weighted Averageof
    
    
    Grant Date FairShares
    
    
    ValueBalance at December 31, 2010
    
    
    2,448,273
    
    
    $
    0.44Restricted share awards issued
    
    
    
    
    
    
    Restricted share awards vested
    
    
    (359,964
    )
    
    
    0.19Restricted share awards cancelled
    
    
    
    
    
    
    Balance at March 31, 2011
    
    
    2,088,309
    
    
    $
    0.48
 9. Net Loss Per Common Share
   Three months endedMarch 31,2011
    
    
    2010Outstanding stock options
    
    
    6,420
    
    
    
    4,968Unvested restricted stock
    
    
    2,088
    
    
    
    2,450Unvested restricted stock units
    
    
    333
    
    
    
    
 10. Comprehensive Loss
  Three months endedMarch 31,2011
    
    
    2010Net loss
    
    $
    (2,447
    )
    
    $
    (204
    )Other comprehensive income (loss):Change in unrealized gain (loss) on available-for-sale securities
    
    
    
    
    
    
    (2
    )Comprehensive loss
    
    $
    (2,447
    )
    
    $
    (206
    )
 12




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11. Warrant Issuance
  
 Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 Cautionary Note Regarding Forward-Looking Statements
 This Quarterly Report on Form 10-Q contains forward-looking statements that are based on the
current beliefs of management, as well as current assumptions made by, and information currently
available to, management. All statements contained in this Quarterly Report on Form 10-Q , other
than statements that are purely historical, are forward-looking statements. Words such as
anticipate, expect, intend, plan, believe, may, will, could, continue, seek,
estimate,, probably, potentially or the negative thereof and similar expressions also
identify forward-looking statements. These forward-looking statements are subject to risks and
uncertainties that could cause our future actual results, performance or achievements to 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 risks and uncertainties discussed in this
section, as well as in the section entitled Risk Factors in this Quarterly Report on Form 10-Q
and other reports filed with the United States Securities and Exchange Commission (the SEC).
Forward looking statements include our belief that our cash, cash equivalents and short-term
investments as of March 31, 2011 and the Zogenix quarterly royalty payments will be sufficient to
enable us to fund our operations through at least the second quarter of 2011, our expectation that
we will incur operating losses for the foreseeable future, our anticipations regarding revenue,
collaboration agreements and our longer-term strategy and our expectations regarding clinical
trials and orphan drug designations.
 These forward-looking statements and our business are subject to significant risks including,
but not limited to, our ability to obtain additional financing, our ability to implement our
product development strategy, the success of product development efforts, obtaining and enforcing
patents important to our business, clearing the lengthy and expensive regulatory approval process
and possible competition from other products. Even if product candidates appear promising at
various stages of development, they may not reach the market or may not be commercially successful
for a number of reasons. Such reasons include, but are not limited to, the possibilities that the
potential products may be found to be ineffective during clinical trials, may fail to receive
necessary regulatory approvals, may be difficult to manufacture on a large scale, are uneconomical
to market, may be precluded from commercialization by proprietary rights of third parties or may
not gain acceptance from health care professionals and patients.
 Investors are cautioned not to place undue reliance on the forward-looking statements
contained herein, which speak only as of the date of the filing of this Quarterly Report on Form
10-Q. We undertake no obligation to update these forward-looking statements in light of events or
circumstances occurring after the date of the filing of this Quarterly Report on Form 10-Q or to
reflect the occurrence of unanticipated events.
 Overview
   13




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Pseudomonas aeruginosa
 Pseudomonas aeruginosa
   Pseudomonas aeruginosa
 14




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Pseudomonas aeruginosa 10 10 Pseudomonas aeruginosa statistically significant
 Pseudomonas aeruginosa
   Critical Accounting Policies and Estimates
  15




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Revenue Recognition
 Revenue Recognition Revised and Updated Revenue Arrangements-Multiple Element
Arrangements
    Impairment of Long-Lived Assets
 , Property, Plant & Equipment  Overall
 Accounting for Costs Associated with Exit or Disposal Activities
 Exit or Disposal Cost Obligations,
 Research and Development
  Income Taxes
  16




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Stock-Based Compensation
 Compensation-Stock
Compensation Equity-Equity Based Payments to Non-Employees
   Recent Accounting Pronouncements
  Results of Operations
 Three months ended March 31, 2011 and 2010
     17




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Liquidity and Capital Resources
    Three months ended March 31, 2011
  Three months ended March 31, 2010
  Off-Balance Sheet Financings and Liabilities
  
 Item 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   18




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Changes in Internal Control over Financial Reporting
  19




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PART II: OTHER INFORMATION
 
 Item 1.
    
    LEGAL PROCEEDINGS
  
 Item 1A.
    
    Risk Factors
 In addition to the other information contained in this Quarterly Report on Form 10-Q , and risk
factors set forth in the 2010 Annual Report on Form 10-K and our other filings with the SEC, the
following risk factors should be considered carefully before you decide whether to buy, hold or
sell our common stock. Our business, financial condition, results of operations and stock price
could be materially adversely affected by any of these risks. Additional risks not presently known
to us or that we currently deem immaterial may also impair our business, financial conditions,
results of operations and stock price.
 The risk factors included herein include any material changes to and supersede the risk
factors associated with our business previously disclosed in Part I, Item 1A, Risk Factors of the
2010 Annual Report on Form 10-K . We have marked with a double asterisk (**) those risk factors that
reflect substantive changes from the risk factors included in the 2010 Annual Report on Form 10-K .
 Risks Related to Our Business
 We are an early-stage company.
  **We will need to raise additional capital in the very near future and we may not be able to raise
additional capital on a timely basis, on reasonable terms or at all.
  
    

    our progress in the application of our delivery and formulation technologies, which may
require further refinement of these technologies;
 
    

    the number of product development programs we pursue and the pace of each program;
 
    

    our progress with formulation development;
 
    

    the scope, rate of progress, results and costs of preclinical testing and clinical
trials;
 
    

    the time and costs associated with seeking and maintaining regulatory approvals;
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
    
    our ability to outsource the manufacture of our product candidates and the costs of doing
so;
 
    
    the time and costs associated with establishing in-house resources to market and sell
certain of our products;
 
    
    our ability to establish collaborative arrangements with others and the terms of those
arrangements;
 
    
    the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims, and
 
    
    our need to acquire licenses, or other rights for our product candidates.
  **We have a history of losses, we expect to incur losses for at least the foreseeable future, and
we may never attain or maintain profitability.
  
    
    continue drug product development efforts;
 
    
    conduct preclinical testing and clinical trials;
 
    
    pursue additional applications for our existing delivery technologies;
 
    
    outsource the commercial-scale production of our products; and
 
    
    establish a sales and marketing force to commercialize certain of our proprietary
products if these products obtain regulatory approval.
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**Our dependence on future collaborators may delay or terminate certain of our programs, and any
such delay or termination would harm our business prospects and stock price.
    We are dependent upon Zogenix and its partners to successfully market and sell the SUMAVEL DosePro
needle-free delivery system in order to realize value from this asset.
  The results of later stage clinical trials of our product candidates may not be as favorable as
earlier trials and that could result in additional costs and delay or prevent commercialization of
our products.
  If our clinical trials are delayed because of patient enrollment or other problems, we would incur
additional costs and delay the potential receipt of revenues.
  22




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We are subject to extensive regulation, including the requirement of approval before any of our
product candidates can be marketed. We may not obtain regulatory approval for our product
candidates on a timely basis, or at all.
   Regulatory authorities may delay or not approve our product candidates even if the product
candidates meet safety and efficacy endpoints in clinical trials or the approvals may be too
limited for us to earn sufficient revenues.
  Even if we are granted initial FDA approval for any of our product candidates, we may not be able
to maintain such approval, which would reduce our revenues.
  23




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Because our proprietary liposomal ciprofloxacin programs rely on the FDAs and European Medicines
Agencys grant of orphan drug designation for potential market exclusivity, the product may not be
able to obtain market exclusivity and could be barred from the market in the US for up to seven
years or European Union for up to ten years.
    We have limited manufacturing capacity and will have to depend on contract manufacturers and
collaborators; if they do not perform as expected, our revenues and customer relations will
suffer.
   In order to market our proprietary products, we are likely to establish our own sales, marketing
and distribution capabilities. We have no experience in these areas, and if we have problems
establishing these capabilities, the commercialization of our products would be impaired.
  24




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If any products that we or our future collaborators may develop do not attain adequate market
acceptance by healthcare professionals and patients, our business prospects and results of
operations will suffer.
  
    
    the demonstration of efficacy and safety in clinical trials;
    
    the existence, prevalence and severity of any side effects;
    
    the potential or perceived advantages or disadvantages compared to alternative
treatments;
    
    the timing of market entry relative to competitive treatments;
    
    the relative cost, convenience, product dependability and ease of administration;
    
    the strength of marketing and distribution support;
    
    the sufficiency of coverage and reimbursement of our product candidates by governmental
and other third-party payors; and
    
    the product labeling or product insert required by the FDA or regulatory authorities in
other countries.
  We depend upon our proprietary technologies, and we may not be able to protect our potential
competitive proprietary advantage.
   We may infringe on the intellectual property rights of others, and any litigation could force us
to stop developing or selling potential products and could be costly, divert management attention
and harm our business.
  25




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We are in a highly competitive market, and our competitors have developed or may develop
alternative therapies for our target indications, which would limit the revenue potential of any
product we may develop.
  If we do not continue to attract and retain key employees, our product development efforts will be
delayed and impaired.
  If we market our products in other countries, we will be subject to different laws and regulations
and we may not be able to adapt to those laws and regulations, which could increase our costs
while reducing our revenues.
  26




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We may be exposed to product liability claims, which would hurt our reputation, market position
and operating results.
  If we cannot arrange for adequate third-party reimbursement for our products, our revenues will
suffer.
  Our use of hazardous materials could subject us to liabilities, fines and sanctions.
  If we are unable to effectively implement or maintain a system of internal control over financial
reporting, we may not be able to accurately or timely report our financial results and our stock
price could be adversely affected.
  Risks Related to Our Common Stock
 Our stock price is likely to remain volatile.
  27




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
    
    investor perception of us;
    
    our available cash;
    
    market conditions relating to our segment of the industry or the securities markets in
general;
    
    investor perception of the value of the royalty stream from Zogenix;
    
    sales of our stock by certain large institutional shareholders;
    
    research analyst recommendations and our ability to meet or exceed quarterly performance
expectations of analysts or investors;
    
    failure to establish or delays in establishing new collaborative relationships;
    
    fluctuations in our operating results;
    
    announcements of technological innovations or new commercial products by us or our
competitors;
    
    publicity regarding actual or potential developments relating to products under
development by us or our competitors;
    
    developments or disputes concerning patents or proprietary rights;
    
    delays in the development or approval of our product candidates;
    
    regulatory developments in both the United States and foreign countries;
    
    concern of the public or the medical community as to the safety or efficacy of our
products, or products deemed to have similar safety risk factors or other similar
characteristics to our products;
    
    future sales or expected sales of substantial amounts of common stock by shareholders;
    
    our ability to raise capital; and
    
    economic and other external factors.
  Our common stock is quoted on the OTC Bulletin Board, which may provide less liquidity for our
shareholders than the national exchanges.
  28




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Our common stock may be considered penny stock and may be difficult to sell.
  We have implemented certain anti-takeover provisions, which may make an acquisition less likely or
might result in costly litigation or proxy battles.
    We have never paid dividends on our capital stock, and we do not anticipate paying cash dividends
for at least the foreseeable future.
  A small number of shareholders own a large percentage of our common stock and can influence the
outcome of matters submitted to our shareholders for approval.
  Our independent public accounting firm, in its audit opinion issued in connection with our
financial statements for the period ended December 31, 2010, has expressed substantial doubt about
our ability to continue as a going concern given our recurring losses from operations.
  29




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Item 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 Item 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 Item 4 (REMOVED AND RESERVED)
 
 Item 5.
    
    OTHER INFORMATION
  30




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Item 6.
    
    EXHIBITS
 ExhibitNumber
    
    Description31.1
    
    Certification of the Principal Executive Officer required by Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of the Principal Financial Officer required by Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of the Principal Executive Officer and Principal Financial Officer required
by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 Aradigm AERx, AERx Essence and AERx Strip are registered trademarks of Aradigm Corporation.*
    
    Other names and brands may be claimed as the property of others. 31




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SIGNATURES
  ARADIGM CORPORATION/s/ Igor GondaIgor GondaPresident and Chief Executive Officer
(Principal Executive Officer)/s/ Nancy E. PecotaNancy E. PecotaVice President, Finance and Chief Financial
Officer (Principal Financial and Accounting Officer)  32




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INDEX TO EXHIBITS
 ExhibitNumber
    
    Description31.1
    
    Certification of the Principal Executive Officer required by Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of the Principal Financial Officer required by Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of the Principal Executive Officer and Principal Financial Officer
required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United
States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 33