UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 July 2, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ________ to ___________.

Commission file number: 001-32735

CLARK HOLDINGS INC.

(Exact name of registrant as specified in its charter)

Delaware		43-2089172
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

121 New York Avenue, Trenton, New Jersey		08638
(Address of principal executive offices)		(Zip Code)

(609) 396-1100

(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. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorted period that the registrant was required to submit and post such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

	Large accelerated filer o	Accelerated filer o
	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

As of August 12, 2011, we had 12,032,193 shares of common stock issued and outstanding.

CLARK HOLDINGS INC.

AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED JULY 2, 2011

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS	3

	Condensed Consolidated Balance Sheets as of July 2, 2011 (Unaudited) and January 1, 2011	3

	Condensed Consolidated Statements of Operations for the 13 and 26 Weeks Ended July 2, 2011 and July 3, 2010 (Unaudited)	4

	Condensed Consolidated Statements of Cash Flows for the 26 weeks Ended July 2, 2011 and July 3, 2010 (Unaudited)	5

	Notes to Condensed Consolidated Financial Statements	6

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	25

ITEM 4.	CONTROLS AND PROCEDURES	26

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	27

ITEM 1A.	RISK FACTORS	27

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	27

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	27

ITEM 4.	RESERVED	27

ITEM 5.	OTHER INFORMATION	27

ITEM 6.	EXHIBITS	28

SIGNATURES		29

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CLARK HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	(Unaudited)
	July 2, 2011			January 1, 2011
ASSETS
CURRENT ASSETS:
Cash	$	31		$	146
Accounts receivable, net		4,711			4,953
Income tax receivable		389			389
Other receivables		76			141
Prepaid expenses		784			730
Deferred tax assets-current		537			537
Total Current Assets		6,528			6,896

PROPERTY AND EQUIPMENT, net of accumulated depreciation		1,484			1,678

INTANGIBLE ASSETS, net of accumulated amortization		12,356			12,990

TOTAL ASSETS	$	20,368		$	21,564

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Current portion of long term debt	$	2,221		$	2,557
Accounts payable		5,521			5,687
Accrued expenses and other payables		3,876			4,312
Total Current Liabilities		11,618			12,556

DEFERRED TAX LIABILITIES-NON-CURRENT		2,765			2,896

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Preferred stock-$.0001 par value; 1,000,000 shares authorized; none issued		–			–
Common stock-$.0001 par value; 40,000,000 shares authorized; 10,858,755 issued and outstanding at July 2, 2011 and January 1, 2011.		1			1
Additional paid-in capital		73,607			73,574
Accumulated deficit		(67,623	)		(67,463	)
Total Shareholders' Equity		5,985			6,112

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	20,368		$	21,564

See accompanying notes to condensed consolidated financial statements.

CLARK HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(In thousands, except share and per share data)

	13 Weeks Ended						26 Weeks Ended
	July 2, 2011			July 3, 2010			July 2, 2011			July 3, 2010

Gross Revenues	$	15,074		$	17,311		$	30,089		$	31,865

Freight expense		(9,974	)		(12,101	)		(19,839	)		(22,169	)
Depreciation and amortization		(422	)		(413	)		(840	)		(820	)
Operating, selling and administrative expense		(4,803	)		(5,141	)		(9,727	)		(10,531	)
Restructuring charges		(43	)		(218	)		9			(285	)
Impairment charge		–			(594	)		–			(594	)
Operating loss		(168	)		(1,156	)		(308	)		(2,534	)

Interest income		–			–			–			2
Interest expense		(40	)		(39	)		(75	)		(80	)
Loss before income taxes		(208	)		(1,195	)		(383	)		(2,612	)
Benefit for income taxes		91			910			164			1,425

Loss from continuing operations	$	(117	)	$	(285	)	$	(219	)	$	(1,187	)
Income (loss) from discontinued operations, net of tax		14			(364	)		59			(715	)
Net loss	$	(103	)	$	(649	)	$	(160	)	$	(1,902	)


Basic & diluted income (loss) per share
Loss from continuing operations	$	(0.01	)	$	(0.03	)	$	(0.02	)	$	(0.11	)
Income (loss) from discontinued operations		–			(0.03	)		0.01			(0.07	)
Net loss	$	(0.01	)	$	(0.06	)	$	(0.01	)	$	(0.18	)

Weighted average shares used to compute income (loss) per share
Basic and diluted		10,858,755			10,858,755			10,858,755			10,858,755

See accompanying notes to condensed consolidated financial statements

CLARK HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

	26 Weeks Ended
	July 2, 2011			July 3, 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(160	)	$	(1,902	)
Income (loss) from discontinued operations		59			(715	)
Loss from continuing operations	$	(219	)	$	(1,187	)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation		204			196
Amortization		634			624
Stock-based compensation expense		33			49
Impairment charges		–			594
Deferred income tax benefit		(131	)		(1,425	)
Loss on disposition of fixed assets		16			–
Provision for doubtful accounts and allowances		95			163
Changes in operating assets and liabilities:
Accounts receivable		172			(1,833	)
Taxes receivable		–			(616	)
Other receivables		8			206
Prepaid expenses		(54	)		(455	)
Accounts payable		22			2,046
Accrued expenses and other payables		(422	)		(441	)
Net cash provided by (used in) operating activities from continuing operations	$	358		$	(2,079	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(26	)		(210	)
Proceeds from disposal of assets		–			80
Net cash used in investing activities from continuing operations	$	(26	)	$	(130	)

CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of term loan		–			(2,895	)
Net bank credit line (repayments) proceeds		(336	)		3,428
Decrease in restricted cash		–			718
Net cash (used in) provided by financing activities from continuing operations	$	(336	)	$	1,251

CASH FLOWS FROM DISCONTINUED OPERATIONS
Net cash used in operating activities		(111	)		(808	)
Net cash used in investing activities		–			–
Net cash provided by financing activities		–			–
Net cash used by discontinued operations	$	(111	)	$	(808	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(115	)		(1,766	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		146			2,879

CASH, END OF PERIOD	$	31		$	1,113

SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid	$	88		$	80
Income taxes paid	$	70		$	–

See accompanying notes to condensed consolidated financial statements.

CLARK HOLDINGS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION

Nature of Business. Clark Holdings Inc. (the “Company”) is a holding company which conducts its business through its operating subsidiaries. The Company provides transportation management and logistics services to the print media and other industries, providing ground, air, and ocean freight forwarding, as well as contract logistics, customs clearances, distribution, inbound logistics, truckload brokerage, and other supply chain management solutions.

Basis of Presentation. The condensed consolidated financial statements are presented in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to Article 8 of Regulation S-X. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of the financial position, results of operations and cash flows for the periods indicated. You should read these condensed consolidated financial statements in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 1, 2011, filed with the SEC on April 13, 2011. The January 1, 2011 consolidated financial statements were derived from audited consolidated financial statements but does not include all disclosures required by U.S. GAAP.

The condensed consolidated financial statements include the accounts of Clark Holdings Inc., a Delaware corporation, and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. As of July 2, 2011, there have been no significant changes to any of the Company’s accounting policies as set forth in the Annual Report on Form 10-K for the year ended January 1, 2011.

The results of operations for the 13 and 26 weeks ended July 2, 2011 are not necessarily indicative of the results that may be expected for any other interim period or for the full year ending December 31, 2011.

Reclassifications. Certain prior period balances have been reclassified to conform to the current financial statement presentation, including those associated with presentation of the Company’s discontinued operations in accordance with authoritative guidance. These reclassifications had no impact on previously reported results of operations or shareholders’ equity.

Estimates and Uncertainties. The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s most significant estimates and assumptions made in the preparation of the condensed consolidated financial statements relate to revenue recognition, accounts receivable allowance for doubtful accounts, intangible assets, income taxes, and accrued expenses. Actual results could differ from those estimates.

As reflected in the accompanying condensed consolidated financial statements, the Company incurred a net loss of $160,000 for the 26 weeks ended July 2, 2011. During 2010, management completed a series of cost reduction initiatives, including closure of its brokerage division, a management reorganization of its international division, several reductions in workforce, and a wage freeze and a wage reduction. Collectively, these initiatives reduced the Company’s annual operating costs by about $8 million. In addition, the Company reduced capital expenditure budgets and amended its credit facility agreement on March 25, 2011 (Note 5). The Company continues to pursue a number of initiatives to further reduce its costs and increase its revenues. While management believes that these actions taken to improve the Company’s operating and financial requirements will allow the Company to sustain its future operations and meet its financial covenants, further steps may need to be taken if the above actions prove to be insufficient.

CLARK HOLDINGS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)

Liquidity. The Company generally funds its obligations using cash from operations and, from time to time, advances under its line of credit. During the 26 weeks ended July 2, 2011, the Company's cash from operations was sufficient to meet its obligations. Advances during prior periods, however, have resulted in a balance of $2,221,000 on its line of credit. In addition, because the Company does not have significant cash available, the Company periodically draws on its line of credit in order to meet liquidity needs that arise due to timing issues. Because the Company has experienced pre-tax losses during the 26 weeks ended July 2, 2011, there can be no assurance that the Company will continue to meet the financial covenants required by its line of credit. If, due to a breach of the financial covenants, the line of credit is no longer available, the Company may be unable to meet its obligations as they come due. In addition, the lender would be entitled to accelerate the loan and there can be no assurance that the Company will have sufficient assets to repay it.

Fair Value of Financial Instruments. The carrying value of cash equivalents, accounts receivable, accounts payable and short-term debt reasonably approximate their fair value due to the relatively short maturities of these instruments. The fair value estimates presented herein were based on market or other information available to management. The use of different assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts.

Cash. On the Condensed Consolidated Statements of Cash Flows, the beginning of period balance for the reported 26 weeks ended July 3, 2010 includes cash and cash equivalents. All other beginning and end of period balances reflect only cash.

Restricted Cash. At January 2, 2010, $718,000 of bank deposits were classified as restricted as collateral for outstanding letters of credit issued by the Company’s former bank. On March 18, 2010, the restricted cash was released as part of the Company’s refinancing of its bank credit facility (see Note 5) and the proceeds were used to pay down the bank line.

Accounts Receivable – Accounts receivable are recorded at management's estimate of net realizable value. Management evaluates the adequacy of the allowance for uncollectible accounts on a customer specific basis. These factors include historical trends, general and specific economic conditions and local market conditions. Accounts are written off when management determines collection is doubtful. See Note 3 for details regarding the Company’s allowance for uncollectible accounts at July 2, 2011, and January 1, 2011.

Income Taxes. The Company recognizes deferred tax assets, net of applicable valuation allowances, related to net operating loss carry-forwards and certain temporary differences and deferred tax liabilities related to certain temporary differences. The Company recognizes a future tax benefit to the extent that realization of such benefit is considered to be more likely than not. This determination is based upon the projected reversal of taxable temporary differences, projected future taxable income and use of tax planning strategies. Otherwise, a valuation allowance is applied. To the extent that the Company’s deferred tax assets require valuation allowances in the future, the recording of such valuation allowances would result in an increase to its tax provision in the period in which the Company determines that such a valuation allowance is required.

The Company evaluates the need for a deferred tax valuation allowance quarterly. No valuation allowance was required as of July 2, 2011 and January 1, 2011 as it was deemed more likely than not that the Company’s deferred tax assets will be realized. Although the Company incurred substantial losses before income taxes for the year ended January 1, 2011, management believes that it is more likely than not that the Company will recognize the deferred tax assets. However, if future events change management’s assumptions and estimates regarding the Company’s future earnings, a significant deferred tax asset valuation allowance may have to be established.

CLARK HOLDINGS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

Adoption of New Accounting Standards – In October 2009, the Financial Accounting Standards Board (“FASB”) issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements (ASU 2009-13), which amends Codification Topic 605, Revenue Recognition. This update provides amendments to the criteria for separating deliverables, measuring and allocating arrangement consideration to one or more units of accounting. This update also establishes a selling price hierarchy for determining the selling price of a deliverable. The adoption of this authoritative guidance on January 2, 2011 did not materially impact the Company’s financial position, results of operations or cash flows.

There were no other accounting standards adopted during the 13 and 26 weeks ended July 2, 2011.

Standards Issued But Not Yet Effective – Other new pronouncements issued but not effective until after July 3, 2011 are not expected to have a material impact on the Company’s consolidated financial statements.

Proposed Amendments to Current Accounting Standards – Updates to existing accounting standards and exposure drafts, such as exposure drafts related to revenue recognition, lease accounting, loss contingencies, comprehensive income, and fair value measurements, that have been issued or proposed by FASB or other standards setting bodies that do not require adoption until a future date, are being evaluated by the Company to determine whether adoption will have a material impact on the Company’s consolidated financial statements.

NOTE 3 – CONDENSED CONSOLIDATED BALANCE SHEET COMPONENTS

($000s)		(Unaudited)
Accounts receivable, net		July 2, 2011			January 1, 2011
Continuing Operations:
Accounts receivable, gross		$	5,578		$	5,812
Allowance for doubtful accounts			(819	)		(872	)
Allowance for cargo claims			(48	)		(17	)
		$	4,711		$	4,923
Discontinued Operations:
Accounts receivable, gross		$	142		$	213
Allowance for doubtful accounts			(142	)		(183	)
			–			30
Accounts receivable, net		$	4,771		$	4,953

Property and Equipment, net	Useful Lives
Land		$	71		$	71
Building	40		465			465
Equipment	3 – 7 years		672			642
Furniture and fixtures	7 years		315			315
IT systems	3 years		895			895
Leasehold improvements	5 – 10 years		138			163
			2,556			2,551
Less: Accumulated depreciation and amortization			(1,072	)		(873	)
		$	1,484		$	1,678

CLARK HOLDINGS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – INTANGIBLE & LONG-LIVED ASSETS

The Company accounts and tests for impairment its intangible assets and other long-lived assets in accordance with authoritative guidance. All of the Company’s recorded intangible assets other than trade names are deemed to be finite-lived intangibles and are thus amortized over their estimated useful lives. Impairment tests for these intangible and long-lived assets are performed when a triggering event occurs that indicates that the carrying value of the intangible may not be recoverable.

During the 13 weeks ended July 3, 2010, the Company recognized $594,000 of impairment charges related to abandoned IT investments not yet placed into service that had previously been capitalized as “Construction-in-progress” plant and equipment assets. The non-cash charges associated with these impairments are recognized as “Impairment charges” in the Company’s Condensed Consolidated Statements of Operations and Cash Flows.

Intangible Assets

Intangible assets as of January 1, 2011 and July 2, 2011 relate primarily to the estimated fair value of customer relationships acquired with respect to the Clark Group, Inc. acquisition. The carrying values of these intangible assets are summarized below:

($000s)	Trade Names		Customer Relationships			Non-Compete Agreements			Intangible Asset Total
Net balance 1/1/2011	$	2,314	$	10,312		$	364		$	12,990
Amortization		–		(574	)		(60	)		(634	)
Impairments		–		–			–			–
Net balance 7/2/2011	$	2,314	$	9,738		$	304		$	12,356

Customer relationships and non-compete agreements are being amortized over useful lives of twelve and five years, respectively. Trade names are deemed an indefinite lived asset, not subject to amortization. Amortization expense totaled $317,000 and $634,000 for the 13 and 26 weeks ended July 2, 2011, respectively. Amortization expense totaled $312,000 and $624,000 for the 13 and 26 weeks ended July 3, 2010, respectively. The following table shows the expected amortization expense for these intangible assets for each of the next five fiscal years:

	($000s)
2011	$	1,267
2012		1,267
2013		1,267
2014		1,146
2015		1,146
Thereafter		4,583
	$	10,676

Amortization expense is a non-cash expense recognized in the consolidated statement of operations.

CLARK HOLDINGS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – DEBT

On March 5, 2010, the Company entered into a credit agreement with Cole Taylor Bank for a three year revolving line of credit. Simultaneously with entering into the credit agreement, the Company terminated its prior credit agreement with BOA and made an initial draw under the new credit facility to repay then-outstanding loans from BOA. The credit agreement with Cole Taylor Bank was subsequently amended on May 17, 2010, November 11, 2010 and March 25, 2011. The credit agreement, as amended, provides for a revolving credit facility of up to $6,000,000, with a $1,000,000 sublimit for letters of credit. Under the terms of the credit agreement, as amended, the Company may borrow up to the lesser of (i) $6,000,000 and (ii) an amount derived from the Company’s eligible accounts receivable less certain specified reserves and the value of outstanding letters of credit. The credit facility is collateralized by a first priority security interest in substantially all of the Company’s assets and requires payment of interest only during the facility’s three year term. The interest rate on the line of credit varies based on the bank’s prime rate or LIBOR and is equal to the greater of 6.5% or the bank’s prime rate plus 2.5%, for borrowings based on the prime rate, or LIBOR plus 5%, for borrowings based on LIBOR. At July 2, 2011 the applicable interest rate on amounts drawn under the line of credit was 6.5%.

The Company must comply with certain affirmative and negative covenants customary for a credit facility of this type, including limitations on liens, debt, mergers, and consolidations, sales of assets, investments and dividends. The credit facility is also subject to financial covenants. Pursuant to the amendment, the current financial covenant includes a Maximum Allowed Year-to-Date Cumulative Pre-Tax Loss covenant, as defined in the amendment, beginning with the Company’s fiscal quarter ended July 2, 2011. This covenant applies until January 2012, when it is replaced with a Fixed Charge Coverage ratio covenant, as defined in the credit agreement, of no less than 1.05:1 calculated on a cumulative trailing twelve month date basis. At July 2, 2011 the Company was in compliance with its financial covenant. At January 1, 2011 the Company was not in compliance with its minimum cumulative EBITDA financial covenant, which was waived and replaced via the March 25, 2011 amendment.

At July 2, 2011, the Company had an outstanding balance of $2,221,000 drawn under its line of credit, with about $825,000 of undrawn availability. As of January 1, 2011, the Company had an outstanding balance of $2,557,000 under the line of credit and approximately $457,000 of undrawn availability under the line of credit.

NOTE 6 – WARRANTS & CONTINGENTLY TRADABLE SHARES

Warrants

On February 21, 2006, in an initial public offering, the Company sold 10,000,000 units (“Units”) in the Offering for $8.00 per Unit. In connection with the closing of the initial public offering, 2,272,727 initial stockholder warrants were issued at $1.10 per warrant. On March 1, 2006, pursuant to the underwriters’ over-allotment option, the Company sold an additional 1,000,000 Units for $8.00 per Unit. Each unit consisted of one share of common stock, par value $.0001 per share (“Share”), and one warrant to purchase one Share at an exercise price of $6.00 per Share (“Warrant”). All 13,272,727 warrants became exercisable upon the completion of the acquisition of Clark Group Inc. on February 12, 2008 and expired unexercised on February 15, 2011.

Contingently Tradable Shares

Founders of the Company placed 1,173,438 shares of common stock into escrow under a lock-up agreement for release under two conditions: upon occurrence of a change of control event or if the Company’s closing stock price for any 20 day trading period, within a 30 day trading period, exceeds $11.50 per share before February 12, 2013. If the escrow release condition is not satisfied by February 12, 2013, the shares in escrow will be returned to the Company’s transfer agent for cancellation. As a result of the condition to which the escrowed shares are subject, these shares are considered contingently tradable, and as such, are excluded from outstanding shares and earnings per share calculations.

CLARK HOLDINGS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 – INCOME (LOSS) PER SHARE

Basic income (loss) per share is computed using the weighted average number of common shares outstanding. Diluted income (loss) per share is computed using the weighted average number of common shares outstanding as adjusted for the incremental shares attributable to outstanding options and warrants to purchase common stock.

The following table sets forth the computation of the basic and diluted income (loss) per share:

	13 Weeks Ended						26 Weeks Ended
($000s)	July 2, 2011			July 3, 2010			July 2, 2011			July 3, 2010
Numerator for basic and diluted:
Loss from continuing operations	$	(117	)	$	(285	)	$	(219	)	$	(1,187	)
Income (loss) from discontinued operations		14			(364	)		59			(715	)
Net loss	$	(103	)	$	(649	)	$	(160	)	$	(1,902	)

Denominator :
For basic loss per common share – weighted average shares outstanding		10,858,755			10,858,755			10,858,755			10,858,755
Effect of dilutive securities - stock options, restricted stock units and warrants		–			–			–			–
For diluted loss per common share – weighted average shares outstanding adjusted for assumed exercises		10,858,755			10,858,755			10,858,755			10,858,755

Basic and diluted loss per share
Continuing operations	$	(0.01	)	$	(0.03	)	$	(0.02	)	$	(0.11	)
Discontinued operations		–			(0.03	)		0.01			(0.07	)
Net loss	$	(0.01	)	$	(0.06	)	$	(0.01	)	$	(0.18	)

The following options and warrants to purchase common stock were excluded from the computation of diluted loss per share for the 13 and 26 weeks ended July 2, 2011 and July 3, 2010 because they would be antidilutive as their exercise price was greater than the average market price of the common stock or as a result of the Company’s net loss for a reporting period:

	13 Weeks Ended				26 Weeks Ended
Anti-dilutive warrants and options:	July 2, 2011		July 3, 2010		July 2, 2011		July 3, 2010
Warrants *		–		13,272,727		–		13,272,727
Founders’ shares *		1,173,438		1,173,438		1,173,438		1,173,438
Outstanding stock options		547,000		774,600		547,000		774,600
		1,720,438		15,220,765		1,720,438		15,220,765

* see Note 6 for a description of these securities.

CLARK HOLDINGS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – STOCK-BASED COMPENSATION

The effect of recording stock-based compensation for the 13 and 26 weeks ended July 2, 2011 and July 3, 2010 was as follows:

	13 Weeks Ended						26 Weeks Ended
	July 2, 2011			July 3, 2010			July 2, 2011			July 3, 2010
Stock-based compensation expense by type of award:
Employee stock options	$	10,610		$	16,909		$	22,156		$	33,462
Non-employee director stock options		1,645			7,056			11,168			15,850
Total stock-based compensation expense	$	12,255		$	23,965		$	33,324		$	49,312
Tax effect of stock-based compensation recognized		(4,671	)		(9,155	)		(12,868	)		(18,837	)
Net effect on net loss	$	7,584		$	14,810		$	20,456		$	30,475

Excess tax benefit effect on:
Cash flows from operations	$	–		$	–		$	–		$	–
Cash flows from financing activities	$	–		$	–		$	–		$	–
Effect on loss per share:
Basic	$	0.00		$	0.00		$	0.00		$	0.00
Diluted	$	0.00		$	0.00		$	0.00		$	0.00

As of July 2, 2011, the unrecorded deferred stock-based compensation balance was $44,570 after estimated forfeitures and will be recognized over an estimated weighted average amortization period of about 1.4 years. The Company granted no options during the 13 or 26 weeks ended July 2, 2011. During the 13 weeks ended July 3, 2010, the Company granted 90,000 stock options with an estimated total grant-date fair value of $14,783 after estimated forfeitures. During the 26 weeks ended July 3, 2010, the Company granted 140,000 stock options with an estimated total grant-date fair value of $26,610 after estimated forfeitures.

Valuation Assumptions

The Company estimates the fair value of stock options using a Black-Scholes option-pricing model. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model and the straight-line attribution approach with the following weighted-average assumptions:

13 Weeks Ended

26 Weeks Ended

July 2, 2011

July 3, 2010

July 2, 2011

July 3, 2010

Risk-free interest rate

–

3.0

–

3.0

Dividend yield

–

0.0

–

0.0

Expected stock price volatility

–

Average expected life of options

–

6.0 years

–

6.3 years

Authoritative guidance issued by the FASB requires the use of option pricing models that were not developed for use in valuing employee stock options. The Black-Scholes option-pricing model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. Given the limited trading history of the Company’s stock, the expected stock price volatility assumption was determined using the historic volatility of a peer group of comparable logistic companies with similar attributes, including market capitalization, annual revenues, and debt leverage.

CLARK HOLDINGS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – STOCK-BASED COMPENSATION (CONTINUED)

The Company uses the simplified method suggested by the SEC in authoritative guidance for determining the expected life of the options. Under this method, the Company calculates the expected term of an option grant by averaging its vesting and contractual term. The Company estimates its applicable risk-free rate based upon the yield of U.S. Treasury securities having maturities similar to the estimated term of an option grant.

Equity Incentive Program

The Company’s equity incentive program is a broad-based, long-term retention program that is intended to attract and retain qualified and experienced management, and align stockholder and employee interests. The equity incentive program presently consists of the Company’s 2007 Long-Term Incentive Equity Plan (the “Plan”). Under this Plan, non-employee directors, officers, key employees, consultants and all other employees may be granted options to purchase shares of the Company’s stock, restricted stock units and other types of equity awards. Under the equity incentive program, stock options generally have a vesting period of three years, are exercisable for a period of ten years from the date of issuance and are not granted at prices less than the fair market value of the Company’s common stock at the grant date. Options and restricted stock units may be granted with varying service-based vesting requirements. The Company settles Plan stock option exercises and restricted stock grants with newly issued common shares.

Under the Company’s 2007 Plan, 930,000 common shares are authorized for issuance through awards of options or other equity instruments. As of July 2, 2011, 383,000 common shares were available for future issuance under the 2007 Plan.

The following table summarizes the stock option plan activity for the indicated periods:

	Number of Shares			Weighted Average Exercise Price
Balance outstanding at January 1, 2011		582,000		$	0.91
26 weeks ended July 2, 2011:
Options granted		–			–
Options exercised		–			–
Options cancelled/expired/forfeited		(35,000	)		0.64
Balance outstanding at July 2, 2011		547,000		$	0.93

The options outstanding and exercisable at July 2, 2011 were in the following exercise price ranges:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life-Years		Weighted Average Exercise Price		Number Vested and Exercisable		Weighted Average Exercise Price

$0.32 to $0.50		141,750		8.8	$	0.38		47,250	$	0.38
$0.56 to $0.87		355,250		7.9		0.70		179,583		0.72
$4.06		50,000		6.7		4.06		50,000		4.06
		547,000		8.0	$	0.93		276,833	$	1.26

CLARK HOLDINGS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – STOCK-BASED COMPENSATION (CONTINUED)

At July 2, 2011, none of the Company’s stock options were in-the-money. At July 2, 2011, the aggregate intrinsic value of options outstanding and exercisable was $0. No options were exercised during the 13 or 26 weeks ended July 2, 2011.

The weighted average grant date fair value of options granted during the 13 and 26 weeks ended July 3, 2010 was $0.20 and $0.25, respectively.

NOTE 9 – BUSINESS SEGMENTS

The Company operates two business segments, Domestic and International. The Domestic segment consists of operations serving primarily print wholesale customers in North America. The International segment consists principally of shipments outside North America. Results for the now discontinued Brokerage segment are reflected as discontinued operations.

Financial information on business segments for the 13 weeks ended July 2, 2011, and July 3, 2010, is as follows:

For 13 Weeks Ended July 2, 2011

($000s)	Domestic			International			Continuing Operations			Discontinued Operations
Gross revenues	$	11,791		$	3,283		$	15,074		$	(2	)
Freight expense		(7,721	)		(2,253	)		(9,974	)		–
Operating, selling and administrative expense (a)		(3,900	)		(903	)		(4,803	)		26
Restructuring expense		(43	)		–			(43	)		–
Loss from operations before depreciation, amortization, interest and taxes	$	127		$	127		$	254		$	24

Total assets	$	17,150		$	3,218		$	20,368		$	–
Capital expenditures	$	26		$	–		$	26		$	–

For 13 Weeks Ended July 3, 2010

($000s)	Domestic			International			Continuing Operations			Discontinued Operations
Gross revenues	$	12,349		$	4,962		$	17,311		$	1,526
Freight expense		(8,360	)		(3,741	)		(12,101	)		(1,364	)
Operating, selling and administrative expense (a)		(3,880	)		(1,261	)		(5,141	)		(768	)
Impairment charge		(594	)		–			(594	)		–
Restructuring charge		(180	)		(38	)		(218	)		–
Income from operations before depreciation, amortization, interest and taxes	$	(665	)	$	(78	)	$	(743	)	$	(606	)

Total assets	$	20,608		$	4,180		$	24,788		$	1,193
Capital expenditures	$	38		$	40		$	78		$	21

(a)	All corporate overhead services (accounting, finance, billing and customer service, information technologies) and all public company costs are included in domestic operating, selling and administrative expense.

CLARK HOLDINGS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – BUSINESS SEGMENTS (CONTINUED)

Financial information on business segments for the 26 weeks ended July 2, 2011, and July 3, 2010, is as follows:

For 26 Weeks Ended July 2, 2011

($000s)	Domestic			International			Continuing Operations			Discontinued Operations
Gross revenues	$	23,351		$	6,738		$	30,089		$	1
Freight expense		(15,303	)		(4,536	)		(19,839	)		–
Operating, selling and administrative expense (a)		(7,903	)		(1,824	)		(9,727	)		97
Restructuring (expense) benefit		(43	)		52			9			–
Loss from operations before depreciation, amortization, interest and taxes	$	102		$	430		$	532		$	98

Total assets	$	17,150		$	3,218		$	20,368		$	–
Capital expenditures	$	26		$	–		$	26		$	–

For 26 Weeks Ended July 3, 2010

($000s)	Domestic			International			Continuing Operations			Discontinued Operations
Gross revenues	$	23,674		$	8,191		$	31,865		$	2,512
Freight expense		(16,001	)		(6,168	)		(22,169	)		(2,241	)
Operating, selling and administrative expense (a)		(7,945	)		(2,586	)		(10,531	)		(1,463	)
Impairment charge		(594	)		–			(594	)		–
Restructuring charge		(237	)		(48	)		(285	)		–
Income from operations before depreciation, amortization, interest and taxes	$	(1,103	)	$	(611	)	$	(1,714	)	$	(1,192	)

Total assets	$	20,608		$	4,180		$	24,788		$	1,193
Capital expenditures	$	69		$	40		$	109		$	21

(b)	All corporate overhead services (accounting, finance, billing and customer service, information technologies) and all public company costs are included in domestic operating, selling and administrative expense.

For purposes of this disclosure, all inter-company transactions have been eliminated.

CLARK HOLDINGS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – LITIGATION AND CONTINGENCIES

The Company is subject to various claims, complaints and litigation arising out of its normal course of business. The Company refers all such litigation and claims to legal counsel and, where appropriate, to insurance carriers. In the opinion of management, after consulting with legal counsel, the settlement of litigation and various claims will not have a material adverse effect on the operations or financial position of the Company.

On December 17, 2010, Clark Distribution Systems, Inc. (“CDS”), an indirect wholly-owned subsidiary of the Company, filed a complaint in the U.S. District Court for the Middle District of Pennsylvania against ALG Direct, Inc. (“ALG”) seeking approximately $1,012,000 in damages for breach of contract, based on ALG’s failure to pay amounts due for services rendered by CDS under a transportation services agreement between CDS and ALG and for negligent misrepresentation by ALG. On April 8, 2011, ALG filed a complaint in the U.S. District Court for the Northern District of Illinois against The Clark Group, Inc. (“Clark Group”), a direct wholly owned subsidiary of the Company. On July 14, 2011 the Company’s motion to dismiss the Northern District of Illinois case and transfer it to the Middle District of Pennsylvania for combination with the original litigation was granted. In its counter claims, ALG is seeking approximately $1,500,000 in damages for breach of contract, alleging that CDS failed to perform its obligations as contemplated by the transportation services agreement and a related letter of intent and sublease between the parties. ALG is also seeking unspecified damages for breach of the sublease, alleging that CDS denied ALG proper use of the premises.

The Company believes that ALG’s allegations are without merit and intends to vigorously defend itself. In addition, in December 2010, ALG ceased making payments under the sublease, which had a remaining future obligation in excess of $1,800,000. The Company intends to explore all remedies available to it with respect to this sublease default and the breach of contract under the transportation services agreement. However, the ultimate outcome of these actions and the amount of liability or recovery that may result, if any, is not presently determinable.

Other than the above, as of July 2, 2011, the Company was not a party to any material pending legal proceeding, other than ordinary routine litigation incidental to its business.

CLARK HOLDINGS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – DISCONTINUED OPERATIONS

On August 9, 2010, management began implementing a Board approved plan (“Plan”) to discontinue the Company’s start-up brokerage operations. The decision to take this action resulted from an extensive evaluation of the division, which resulted in the conclusion that it was not achieving performance levels that warranted further investment. Employment of the brokerage division’s remaining personnel was terminated, with transitional agreements reached with several of the divisions key management personnel. Operations of the division ceased in the quarter ended October 2, 2010.

Refer to Note 9 to the Condensed Consolidated Financial Statements for additional information regarding the significant components of discontinued brokerage operations results of operations for the 13 and 26 weeks ended July 2, 2011 and July 3, 2010. Other than trade receivables, trade payables and accrued obligations, including those resulting from severance and of lease exit costs, the division had no other material assets or obligations. Other costs associated with exit or disposal activities are recorded when incurred.

The major classes of assets and liabilities included in Condensed Consolidated Balance Sheets for the discontinued brokerage division as of July 2, 2011 and January 1, 2011 were as follows:

($000s)	July 2, 2011		January 1, 2011
Current assets	$	–	$	39
Non-current assets		–		–
Total Assets	$	–	$	39

Current liabilities	$	254	$	454
Non-current liabilities		–		–
Total Liabilities	$	254	$	454

NOTE 12 – RESTRUCTURING CHARGES

During the 13 weeks ended July 2, 2011 the Company realized $43,000 of charges associated with severance obligations. During the 26 weeks ended July 2, 2011 the Company realized $9,000 of net benefit associated with restructuring obligations that were settled for less than original estimates. During the 13 and 26 weeks ended July 3, 2010, the Company recognized severance and related costs totaling $218,000 and $285,000, respectively. These costs and benefits were incurred as a result of a plan to improve the Company’s profitability through reduced operating costs.

The table below reconciles the beginning and ending liability balances in connection with restructuring charges recorded during the 13 weeks ended July 2, 2011 in continuing and discontinued operations:

($000s) Severance and lease exit obligations	Balances at Beginning of Period		Restructuring Charge			Cash Payments			Balances at End of Period
Continuing operations	$	79	$	(43	)	$	(92	)	$	30
Discontinued operations		10		-			(8	)		2
	$	89	$	(43	)	$	(100	)	$	32

The above liability balances at July 2, 2011 are included in accrued expenses and other payables in the accompanying Condensed Consolidated Balance Sheets. Cash payments to be applied against these accruals at July 2, 2011 are expected to be approximately $32,000 during the remainder of 2011.

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

FORWARD LOOKING STATEMENTS

This report, including the discussion contained under this Item 2 of Part I, contains forward-looking statements that involve substantial risks and uncertainties. These forward looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about the Company’s industry, its business, and its financial performance. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, and “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond the Company’s control and difficult to predict and could cause actual results to differ materially from those discussed in the forward-looking statements. Such risks, uncertainties and other factors include, without limitation, the risks, uncertainties and other factors the Company identifies from time to time in its filings with the Securities and Exchange Commission, including under Item 1A of Part II of this report and in its other quarterly reports on Form 10-Q, its annual reports on Form 10-K and its current reports on Form 8-K. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. The Company undertakes no obligation to update such statements to reflect subsequent events.

You should read the following discussion and analysis in conjunction with the information set forth in the unaudited condensed consolidated financial statements and the notes thereto included in this report (the “Condensed Consolidated Financial Statements”) and the audited consolidated financial statements and the notes thereto included in the Company’s annual report on Form 10-K for the year ended January 1, 2011 (the “2010 Form 10-K”), which was filed on April 13, 2011.

OVERVIEW OF THE COMPANY’S BUSINESS

Clark Holdings Inc. is a holding company which conducts its business through its operating subsidiaries, which provide non-asset based transportation and logistics services primarily to the print media industry throughout the United States and between the United States and other countries.

The Company currently has two divisions, a domestic division and an international division. The domestic division operates through a network of operating centers where it consolidates mass market consumer publications so that the publications can be transported in larger, more efficient quantities to common destination points. The Company refers to each common destination point’s aggregated publications as a “pool.” By building these pools, the Company offers cost effective transportation and logistics services for time sensitive publications. The international division has an operating model similar to that of a traditional freight forwarder. It utilizes three distribution centers to consolidate shipments and arrange for international transportation utilizing third-party carriers (air, ocean or ground). From October 2009 until August 2010, the Company also had a third division, a brokerage division. On August 9, 2010, management began implementing a plan to discontinue the brokerage division. The brokerage division had offered a range of non-asset based logistic solutions through a network of third party carriers. See Note 11 to the Condensed Consolidated Financial Statements, regarding this discontinued operation.

See Note 9 to the Condensed Consolidated Financial Statements for a summary of comparative operating results for the Company’s reportable segments and discontinued operations.

EXECUTIVE SUMMARY

As reflected in the accompanying Condensed Consolidated Financial Statements, the Company experienced net losses of $103,000 and $160,000 for the 13 and 26 weeks ended July 2, 2011, including the results of discontinued operations. This compares with a net loss of $649,000 and $1,902,000 for the comparative year ago period, the 13 and 26 weeks ended July 3, 2010, including the results of discontinued operations.

Items Affecting Comparability

The following non-recurring items are included in and significantly impacted the Company’s comparative reported results of operations for the 13 and 26 weeks ended July 2, 2011 and July 3, 2010:

Strategic Advisory and Alternatives Exploration Costs. On November 29, 2010 the Company engaged AlixPartners, LLP as strategic advisors. On February 14, 2011, the Company announced that its Board of Directors unanimously decided to explore financial and strategic alternatives to enhance shareholder value, including the possible sale or merger of the Company. The Board of Directors retained Eve Partners, LLC to assist it in the evaluation of these alternatives. During the 13 and 26 weeks ended July 2, 2011, the Company incurred advisory and related professional fees associated with these initiates totaling $424,000 (about $254,000 after tax) and $753,000 (about $452,000 after tax), respectively. These costs are included in the Company’s 2011 Operating, Selling, General and Administrative Expense in the Condensed Consolidated Statements of Operations. The Company incurred no similar costs in the comparative year ago periods ended July 3, 2010. There can be no assurance that the exploration of strategic alternatives will result in any transaction.

Discontinued Operations. For the 13 and 26 weeks ended July 2, 2011, the Company recognized income of $24,000 ($14,000 after tax) and $98,000 ($59,000 after tax), respectively, associated with its now discontinued brokerage division. In the comparative year ago period, the 13 and 26 weeks ended July 3, 2010, the Company incurred losses of $607,000 ($364,000 after tax) and $1,192,000 ($715,000 after tax) related to the discontinued brokerage division. As discussed in Note 11 to the Consolidated Financial Statements, management decided in August 2010 to cease the Company’s brokerage operations.

Severance & Restructuring Charges. During the 13 weeks ended July 2, 2011, the Company recognized $43,000 (about $26,000 after tax) of expense associated with severance costs. During the 26 weeks ended July 2, 2011, the Company recognized $9,000 (about $5,000 after tax) of benefit associated with severance and lease exit obligations that were settled for less than original estimates. These compare with $218,000 (about $131,000 after tax) and $285,000 (about $171,000 after tax) of restructuring charges, respectively, recognized during the 13 and 26 weeks ended July 3, 2010. Collectively, the reductions in force and facility closings that generated these obligations were part of a plan to reduce costs and improve the Company’s profitability.

Impairment Charge. During the comparative 13 and 26 weeks ended July 3, 2010, the Company recognized $594,000 of impairment charges related to abandoned IT investments not yet placed into service. The Company recognized no similar charges in the current fiscal year.

Impact of Economic Recession

The transportation industry historically has experienced cyclical fluctuations in financial results due to economic recession, downturns in the business cycles of our customers, fuel shortages, price increases by carriers, interest rate fluctuations, and other economic factors beyond our control. Many of the Company's customers have business models that are dependent on expenditures by advertisers. These expenditures tend to be cyclical, reflecting general economic conditions, as well as budgeting and buying patterns. The recent economic recession, the resulting downturn in the business cycles of the Company’s customers (which caused a reduction in the volume of freight shipped by those customers, particularly to the single copy distribution channel) significantly adversely affected the Company’s financial performance, including its revenues, as discussed more fully in this Item under the heading “Results of Operations.” Although there have been some notable improvements in freight volumes, some of these metrics remain unfavorable when compared with prerecession levels.

Initiatives to Reduce Costs & Improve Profitability

Throughout 2010, management completed a series of cost reduction initiatives that included a number of reductions in workforce, wage freezes and wage reductions, discontinuance of unprofitable businesses, and other initiatives. Collectively, these efforts reduced the Company’s annual operating costs by about $8,000,000, including the portion of the most recent initiative completed in 2010 that was started in December 2010 (discussed in next paragraph). As noted above, these restructuring efforts resulted in the recognition of a number of non-recurring costs associated with the reorganization and discontinued operations. These restructuring and reorganization costs and resulting obligations were recognized in the Company’s 2010 financial statements under authoritative guidance, and are discussed fully in Notes 11 and 12 to the Consolidated Financial Statements.

In December 2010 the Company began its most recent profit improvement initiative. This plan was comprised of three elements: (1) selective price increases for services provided by the Company; (2) initiatives to improve the utilization and reduce costs of the Company’s purchased transportation; and (3) reduce the Company’s operating, selling and administrative costs, primarily through reductions in compensation and benefits costs. By the end of the Company’s most recent fiscal quarter ended July 2, 2011, this initiative had been fully implemented. The annualized run-rate improvement from this most recent initiative is estimated to exceed $2,000,000.

Management believes that these actions taken to improve the Company’s operating and financial performance will allow the Company to sustain its future operations and achieve profitability. Throughout the Company, management remains focused on efforts to continue to improve the Company’s profitability and financial position.

Line of Credit

The Company has a line of credit with Cole Taylor Bank. The Company’s credit agreement with Cole Taylor Bank, as amended, requires the Company to comply with certain affirmative and negative covenants customary for a credit facility of this type, including limitations on liens, debt, mergers, and consolidations, sales of assets, investments and dividends. The Company’s credit facility is also subject to financial covenants. At January 1, 2011, the Company was not in compliance with its financial covenant, which was waived via the March 25, 2011 amendment. At July 2, 2011 the Company was in compliance with its financial covenant. The credit agreement and the financial covenant are described more fully later in this section in the discussion titled “Liquidity and Capital Resources.”

SUMMARY FINANCIAL DATA

Gross revenues, freight expense, net revenues (a non-GAAP measure), income (loss) from operations, net income (loss), and diluted income (loss) per share are the key indicators we use to monitor our operating performance. The following table shows summary financial data from continuing operations, including these key indicators, for the year-to-date 13 week fiscal periods and the comparative year ago periods, and also serves to reconcile net revenue to gross revenue, the nearest GAAP financial measure. Management believes that net revenues (gross revenues less freight expenses) are a better measure than gross revenues of the Company’s financial performance since net revenues earned by the Company, as a freight forwarder and consolidator, include the direct incremental costs of transportation services provided by the Company.

The table and the accompanying discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements.

Results from Continuing Operations	Fiscal Year 2011						Fiscal Year 2010
($000, except per share data)	1st			2nd			1st			2nd			3rd			4th
	Quarter			Quarter			Quarter			Quarter			Quarter			Quarter
Gross revenues	$	15,015		$	15,074		$	14,554		$	17,311		$	17,052		$	16,029
Freight expense		9,865			9,974			10,067			12,101			12,134			11,229
Net revenue	$	5,150		$	5,100		$	4,487		$	5,210		$	4,918		$	4,800
Gross Margin %		34.3	%		33.8	%		30.8	%		30.1	%		28.8	%		29.9	%
Loss from operations (a)(b)	$	(140	)	$	(168	)	$	(1,377	)	$	(1,157	)	$	(1,073	)	$	(1,368	)
Operating margin		(0.9	)%		(1.1	)%		(9.5	)%		(6.7	)%		(6.3	)%		(8.5	)%
Net loss (a)(b)	$	(102	)	$	(117	)	$	(902	)	$	(285	)	$	(696	)	$	(836	)
Net margin		(0.7	)%		(0.8	)%		(6.2	)%		(1.7	)%		(4.1	)%		(5.2	)%
Diluted loss per share	$	(0.01	)	$	(0.01	)	$	(0.08	)	$	(0.03	)	$	(0.06	)	$	(0.08	)

(a)

First, second, third, and fourth quarter 2010 includes pretax restructuring charges of $67, $218, $324, and $17 (about $40, $131, $194, and $10 after tax), respectively. In the first quarter 2011, the Company realized $52 of restructuring benefit (about $31 after tax). Second quarter 2011includes a pretax restructuring charge of $43 (about $26 after tax).

(b)

Second quarter 2010 includes non-cash impairment charge of $594 (about $356 after tax) associated with an abandoned IT investment.

See Note 9 to the Condensed Consolidated Financial Statements for a summary of comparative operating results for the Company’s reportable segments.

RESULTS OF OPERATIONS FOR THE 13 AND 26 WEEKS ENDED JULY 2, 2011 AND JULY 3, 2010

Gross Revenues. For the 13 weeks ended July 2, 2011, as compared to the same period last year, gross revenues decreased by $2,237,000 or 13% from $17,311,000 to $15,074,000. For the 26 weeks ended July 2, 2011, as compared to the same period last year, gross revenues decreased by $1,776,000 or 6% from $31,865,000 to $30,089,000. These decreases were primarily driven by lower year-over-year general commodities import revenues resulting from the Company’s decision to exit this competitive low-margin international business, partially offset by growth of the Company’s core print media and reverse logistics services business. As described above in the “Executive Summary,” our core print media business is sensitive to the economy and in particular to the level of print media advertising, fuel prices, and other factors that can impact the price of transportation services.

Net Revenues. For the 13 weeks ended July 2, 2011, as compared to the same period last year, net revenues decreased by $110,000 or 2% from $5,210,000 to $5,100,000. This decrease was driven by the lower year-over-year general commodities import revenues, as discussed above, partially offset by a more favorable sales mix and from initiatives to reduce purchased transportation costs, improve transportation utilization, and recently implemented price increases. For the 26 weeks ended July 2, 2011, as compared to the same period last year, net revenues increased by $553,000 or 6% from $9,697,000 to $10,250,000. This increase was primarily driven by improvements in the Company’s gross margins resulting from initiatives to reduce purchased transportation costs, improve transportation utilization, recently implemented price increases, and a favorable shift in sales mix resulting from reduced sales volume of lower margin services.

Gross Margin. Consolidated gross margin for the 13 weeks ended July 2, 2011, compared to the same period last year, increased by 370 basis points to 33.8% from 30.1%. Consolidated gross margin for the 26 weeks ended July 2, 2011, compared to the same period last year, increased by 370 basis points to 34.1% from 30.4%. These improvements were primarily driven by improvements in the Company’s gross margins resulting from initiatives to reduce purchased transportation costs, improve transportation utilization, recently implemented price increases, and a favorable shift in sales mix resulting from reduced sales volume of lower margin services.

Our margins reflect a portfolio mix of the services we provide as well as the direct variable costs of providing those services to our customers. Generally, the Company’s domestic and international core print media operations generate better margins than those provided by its more competitive international general commodity import services. Margins within the Company’s various divisions and lines of business can vary quite significantly. As a result, the Company’s margins can vary materially, not only as a function of divisional sales mix, but of the sales mix within each division based on the growth or contraction of its sales volume associated with each transportation service offering. Accordingly, it is reasonable to expect continued variability in the Company’s margins, both favorable and unfavorable, as a result of changes in sales mix and market forces.

Operating, Selling, General and Administrative Expense. Operating, selling, general and administrative expense, exclusive of depreciation and amortization and restructuring charges, for the 13 weeks ended July 2, 2011, compared to the same period last year, decreased by $338,000, or 7%, to $4,803,000 from $5,141,000. Operating, selling, general and administrative expense, exclusive of depreciation and amortization and restructuring charges, for the 26 weeks ended July 2, 2011, compared to the same period last year, decreased by $804,000, or 8%, to $9,727,000 from $10,531,000.

As discussed in more detail in the Executive Summary, during the 13 and 26 weeks ended July 2, 2011, the Company incurred strategic advisory and related professional fees associated with its exploration of strategic alternatives. For the 13 and 26 weeks ended July 2, 2011 these costs, included in Operating, Selling, General and Administrative Expense, totaled $424,000 (about $254,000 after tax) and $753,000 (about $452,000 after tax), respectively. The Company incurred no similar costs in the comparative year ago periods ended July 3, 2010. Adjusting for these non-recurring costs, the Company’s core operating, selling, general and administrative expense, exclusive of depreciation and amortization and restructuring charges for the 13 weeks ended July 2, 2011, compared to the same period last year, would have decreased by $762,000, or 15%, to $4,379,000 from $5,141,000. Also adjusted for these non-recurring costs, the Company’s core operating, selling, general and administrative expense, exclusive of depreciation and amortization and restructuring charges would have decreased by $1,557,000, or 15%, to $8,974,000 from $10,531,000 for the 26 weeks ended July 2, 2011.

The decrease in selling, general and administrative expense was primarily driven by our cost reduction efforts. The operating, selling, general and administrative expense associated with each segment of our business is disclosed in Note 9 to the Condensed Consolidated Financial Statements.

Interest Expense. For the 13 and 26 weeks ended July 2, 2011, we incurred interest expense of $40,000 and $75,000, respectively. This compares with interest expense of $39,000 and $80,000, respectively, for the prior year’s 13 and 26 weeks ended July 3, 2010. These changes were primarily the result of year-over-year differences in the amount drawn under the Company’s credit facility.

Income Taxes. For the 13 and 26 weeks ended July 2, 2011, we recorded an income tax benefit related to continuing operations of $91,000 and $154,000, respectively. This compares with an income tax benefit of $910,000 and $1,425,000, respectively, for the 13 and 26 weeks ended July 3, 2010. Our effective blended state and federal tax rate varies due to the magnitude of various permanent differences between pretax income as set forth in the Condensed Consolidated Financial Statements and what is recognized as taxable income by various taxing authorities.

Net Loss. For the 13 and 26 weeks ended July 2, 2011, we lost $103,000 ($0.01 per share basic and diluted) and $160,000 ($0.01 per share basic and diluted), inclusive of income from discontinued operations. This compares with a net loss of $649,000 ($0.06 per share basic and diluted) and a net loss of $1,902,000 ($0.18 per share basic and diluted), inclusive of income from discontinued operations, for the 13 and 26 weeks ended July 3, 2010. This year-over-year improvement is the result of the Company’s profit improvement efforts described above in the Executive Summary under the section titled Initiatives to Reduce Costs & Improve Profitability.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to the Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on our consolidated financial statements, which is incorporated herein by reference.

CRITICAL ACCOUNTING POLICIES

For a description of critical accounting policies see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 1 to the audited financial statements included in the Company’s 2010 Form 10-K. There were no significant changes in the Company’s critical accounting policies during the 26 weeks ended July 2, 2011.

LIQUIDITY AND CAPITAL RESOURCES

The Company generally funds its obligations using cash from operations and, from time to time, advances under its line of credit. During the 26 weeks ended July 2, 2011, the Company's cash from operations was sufficient to meet its obligations. Advances during prior periods, however, have resulted in a balance of $2,221,000 on its line of credit. In addition, because the Company does not have significant cash available, the Company periodically draws on its line of credit in order to meet liquidity needs that arise due to timing issues. Because the Company has experienced pre-tax losses during the 26 weeks ended July 2, 2011, there can be no assurance that the Company will continue to meet the financial covenants required by its line of credit. If, due to a breach of the financial covenants, the line of credit is no longer available, the Company may be unable to meet its obligations as they come due. In addition, the lender would be entitled to accelerate the loan and there can be no assurance that the Company will have sufficient assets to repay it.

During the 26 weeks ended July 2, 2011, our cash and cash equivalents decreased by $115,000 to $31,000. $247,000 was generated by operating activities ($358,000 from continuing operations and $111,000 used by discontinued operations), $26,000 was used in investing activities, and $336,000 was used by financing activities, specifically the repayment of amounts previously drawn under the Company’s credit facility. Net cash used in investing activities of $26,000 included the purchase of various equipment, representing a decrease of $184,000, or 88%, over the $210,000 invested during the comparative 26 weeks ended July 3, 2010. These nominal capital investments were primarily funded by cash provided by operating activities.

We generated $358,000 of cash from our continuing operating activities during the 26 weeks ended July 2, 2011 as compared with $2,079,000 used during the comparative 26 weeks ended July 3, 2010. The $358,000 of cash provided by operating activities during the 26 weeks ended July 2, 2011 resulted from a $219,000 loss from continuing operations, net non-cash charges totaling $851,000 and about $274,000 of cash used primarily to increase our non-cash working capital (current assets less cash and cash equivalents net of current liabilities). The most significant drivers behind the $274,000 increase in our non-cash working capital include: a $400,000 net decrease in our trade obligations and other accrued expenses and a $54,000 increase in our prepaid expenses. These uses of cash were partially offset by cash provided from a $172,000 decrease in our accounts receivable and a $8,000 decrease in our other receivables.

On March 5, 2010, the Company entered into a credit agreement with Cole Taylor Bank for a three year revolving line of credit. Simultaneously with entering into the credit agreement, the Company terminated its prior credit agreement with BOA and made an initial draw under the new credit facility to repay the then-outstanding loans from BOA. The credit agreement with Cole Taylor Bank was subsequently amended on May 17, 2010, November 11, 2010 and March 25, 2011. The credit agreement, as amended, provides for a revolving line of credit of up to $6,000,000, with a $1,000,000 sublimit for letters of credit. Under the terms of the credit agreement, as amended, the Company may borrow up to the lesser of (i) $6,000,000 and (ii) an amount derived from the Company’s eligible accounts receivable less certain specified reserves and the value of outstanding letters of credit. The line of credit is collateralized by a first priority security interest in substantially all of the Company’s assets and requires payment of interest only during the line of credit’s three year term. The interest rate on the line of credit varies based on the bank’s prime rate or LIBOR and is equal to the greater of 6.5% or the bank’s prime rate plus 2.5%, for borrowings based on the prime rate, or LIBOR plus 5%, for borrowings based on LIBOR. At July 2, 2011 the applicable interest rate on amounts drawn under the line of credit was 6.5%.

The Company must comply with certain affirmative and negative covenants customary for a credit facility of this type, including limitations on liens, debt, mergers, and consolidations, sales of assets, investments and dividends. The credit facility is also subject to financial covenants. At January 1, 2011 the Company was not in compliance with its minimum cumulative EBITDA financial covenant, which was waived and replaced via the March 25, 2011 amendment. Pursuant to the amendment, the Company is subject to a Maximum Allowed Year-to-Date Cumulative Pre-Tax Loss covenant, as defined in the amendment, beginning with the Company’s fiscal quarter ended July 2, 2011. This covenant applies until January 2012, when it is replaced with a Fixed Charge Coverage ratio covenant, as defined in the credit agreement, of no less than 1.05:1 calculated on a cumulative trailing twelve month basis.

The Company’s 2011 Cumulative Pre-Tax Loss limits are as follows:

2011 Fiscal Period	Time Period	Maximum Allowed Year-to-Date Cumulative Pre-Tax Loss
1st Quarter	Thirteen (13) week period ending July 2, 2011	$	(550,000	)
April	Eighteen (18) week period ending May 7, 2011	$	(500,000	)
May	Twenty-two (22) week period ending June 4, 2011	$	(450,000	)
June	Twenty-six (26) week period ending July 2, 2011	$	(450,000	)
July	Thirty-one (31) week period ending August 6, 2011	$	(450,000	)
August	Thirty-five (35) week period ending September 3, 2011	$	(450,000	)
September	Thirty-nine (39) week period ending October 1, 2011	$	(450,000	)
October	Forty-four (44) week period ending November 5, 2011	$	(450,000	)
November	Forty-eight (48) week period ending December 3, 2011	$	(450,000	)
December	Fifty-two (52) week period ending December 31, 2011	$	(450,000	)

For the 26 weeks ended July 2, 2011, the Company reported an unaudited pre-tax loss of $285,000, including discontinued operations. Accordingly, the Company may only incur $165,000 of additional cumulative pretax loses under the amended covenant for the remainder of the Company’s 2011 fiscal year.

Pursuant to the March 25, 2011 amendment, the Company’s availability under its line of credit will be reduced by $10,000 per week for 15 consecutive weeks beginning July 1, 2011, until availability is reduced by an aggregate of $150,000. Management does not expect that the line availability reduction will materially impact the Company’s liquidity, based on its forecasts, which are subject to risks and uncertainties.

Covenants in our debt instruments could trigger a default adversely affecting our ability to execute our business plan, our ability to obtain further financing, and potentially adversely affect the ownership of our assets. Upon the occurrence of an event of default under any of our loan agreements, the lenders could elect to declare all amounts outstanding thereunder to be immediately due and payable, and terminate all commitments to extend further debt. If the lenders accelerate the repayment of borrowings, we cannot provide assurance that we will have sufficient assets to repay our debt facilities and our other indebtedness or be able to implement our business plan. If we are unable to repay our outstanding indebtedness, the bank could foreclose on all of our assets, which collateralize our borrowings. Accordingly, the occurrence of an event of default could have a material adverse affect on our financial position, results of operations, and our viability as a going concern. Because of the losses incurred to date, the Company can provide no assurances that it will meet its financial covenants in the future.

Over the next twelve months, our operations may require additional funds and we may seek to raise such additional funds through public or private sales of debt or equity securities, or securities convertible or exchangeable into such securities, strategic relationships, bank debt, lease financing arrangements, or other available means. We cannot provide assurance that additional funding, if sought, will be available or, if available, will be on acceptable terms to meet our business needs. If additional funds are raised through the issuance of equity securities, stockholders may experience dilution, or such equity securities may have rights, preferences, or privileges senior to those of the holders of our common stock. If additional funds are raised through debt financing, the debt financing may involve significant cash payment obligations and financial or operational covenants that may restrict our ability to operate our business. An inability to fund our operations or fulfill outstanding obligations could have a material adverse effect on our business, financial condition and results of operations.

SEASONALITY

While the Company’s revenues are generally not seasonal (as each quarter’s revenue approximates 25% of annual revenues), there may be on occasion special events (e.g., an historical event or death of a celebrity or other public figure) or a publisher’s release of a new publication that favorably impact tonnage and resulting revenues in a particular quarter. While some special events occurred during the 13 and 26 weeks ended July 2, 2011 (e.g., the royal wedding and Elizabeth Taylor’s death), the financial significance of these events was not seasonally significant when viewed either from a historical perspective or relative to managements’ expectations for the occurance of similar events in the future.

MARKET RISK

We are exposed to various market risks, including changes in fuel prices, transportation costs, general levels of inflation, and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as transportation costs, fuel price inflation and interest rates. There has been no material change in the Company’s market risk exposure during the 13 weeks ended July 2, 2011.

Fuel Price Inflation Risk

Increases in fuel costs directly impact our costs of providing transportation services. We do not hedge our fuel price exposures as the net impact of these exposures can, to some degree, be passed along to our customers. We continuously pursue efforts to improve our purchasing of transportation and our contractual ability to pass along inflation in these costs to our customers. While we have historically been able to pass along a significant portion of this inflation in operating costs through higher prices to our customers, we can provide no assurance that we will be able to do so in the future.

Interest Rate Risk

At July 2, 2011, we had about $2,221,000 of debt outstanding under our line of credit. Interest expense under this line of credit is variable, based on its lender’s prime rate. Accordingly, we are subject to interest rate risk in the form of greater interest expense in the event of rising interest rates. We estimate that a 10% increase in interest rates, based on our present level of borrowings, would result in the Company incurring about $14,000 pretax ($8,000 after tax) of greater annual interest expense.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable. For a general discussion of market and related risks, however, please see the section entitled “Market Risk” under Item 2 of Part I of this report.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15(b) under the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with United States generally accepted accounting principles (“U.S. GAAP”). Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our Board of Directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

In our 2010 Form 10-K, we identified deficiencies in the Company’s accounting system with respect to integrated internal control and audit trail features typically found in modern commercial enterprise accounting solutions. In management’s opinion, these deficiencies increase the risk, beyond more than a remote likelihood, that a material misstatement of the Company’s financial statements might not be prevented, detected, and corrected on a timely basis, despite compensating controls implemented by management.

In order to remedy such deficiencies, we made and continue to make changes to our internal control over financial reporting. In connection with the evaluation required by Rule 13a-15(d) under the Exchange Act, our management identified the following changes that occurred during the period covered by this report, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting:

We evaluated our financial accounting needs and selected a respected commercially established enterprise accounting solution: Microsoft Dynamics ERP, formerly known as Great Plains (“Microsoft Dynamics”);

We negotiated a multi-year agreement with a respected commercial SAS 70 compliant to software-as-a-service provider to manage our Microsoft Dynamics installation;

We engaged an experienced systems implementation consultant to assist us;

We designed, configured and uploaded a new chart of accounts that should assist us in achieving our internal and external financial reporting objectives;

We completed the first phase out our implementation of Microsoft Dynamics in January 2011, generating our January 2011 financial statements on the system; and

In February 2011, management migrated all of its non-system generated journal entries to Microsoft Dynamics.

Future phases of the implementation are planned in late 2011, each of which progressively mitigate and address the control deficiencies present in the Company’s legacy accounting systems.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth above in Note 10 to the Condensed Consolidated Financial Statements is incorporated herein by reference.

ITEM 1A. RISK FACTORS

A description of factors that could materially affect our business, financial condition or operating results is included in Item 1A of Part I of the Company’s 2010 Form 10-K and is incorporated herein by reference. There have been no material changes in the Company’s risk factors during the fiscal quarter ended July 2, 2011 from those previously reporting in the 2010 Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. RESERVED

ITEM 5. OTHER INFORMATION

The following disclosure is provided in response to the requirements of Form 8-K:

Item 2.02. On August 15, 2011, the Company issued a press release announcing its unaudited financial results for its fiscal quarter ended July 2, 2011. The press release is included as Exhibit 99.1 hereto. The information furnished pursuant to this Item 2.02, including the exhibit related thereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any disclosure document of the Company, except as shall be expressly set forth by specific reference in such document.

ITEM 6. EXHIBITS

The following exhibits are filed with this report:

Exhibit No.		Description
31.1		Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
31.2		Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
99.1		Second Quarter Fiscal Year 2011 Financial Results Press Release
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

SIGNATURES

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.

	CLARK HOLDINGS INC.

Dated: August 15, 2011	By:	/s/ Gregory E. Burns
		Gregory E. Burns
		Chief Executive Officer

Dated: August 15, 2011	By:	/s/ Kevan D. Bloomgren
		Kevan D. Bloomgren
		Chief Financial Officer

Clark Holdings Inc. 10-Q