SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**FORM
      10-Q**








**QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**


**For
      the quarterly period ended June 30, 2006**


**Commission
      File No. 001-31256**





**CLARK,
      INC.**


(Exact
      name of Registrant as specified in its charter)





**Delaware**
            **52-2103926**(State
                of Incorporation)
            (I.R.S.
                Employer Identification No.)





**102
                South Wynstone Park Drive****North
                Barrington, Illinois**
            **60010**(Address
                of principal executive offices)
            (Zip
                code)





Registrant’s
      telephone number: **(847)
      304-5800**








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





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





Large
      accelerated filer  ̈   Accelerated
      filer x   Non-accelerated
      filer  ̈





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





As
      of
      June 30, 2006, the registrant had outstanding 17,663,288 shares of common
      stock.














**TABLE
      OF CONTENTS**








PAGEForward-Looking
                Statements
            3PART
                I - FINANCIAL INFORMATIONItem
                1. Financial Statements (Unaudited)
            4Condensed
                Consolidated Balance Sheets as of June 30,
                2006and
                December 31, 2005
            4Condensed
                Consolidated Statements of Income for the
                ThreeMonths
                and Six Months Ended June 30, 2006 and 2005
            5Condensed
                Consolidated Statements of Cash Flowsfor
                theSix
                Months Ended June 30, 2006 and 2005
            6Notes
                to Condensed Consolidated Financial
                Statements
            7Item
                2. Management’s Discussion and Analysis of
                FinancialCondition
                and Results of Operations
            17Item
                3. Quantitative and Qualitative Disclosures About
                Market Risk
            26Item
                4. Controls and Procedures
            26PART
                II. OTHER INFORMATIONItem
                1. Legal Proceedings
            26Item
                1A. Risk Factors
            27Item
                2. Unregistered Sales of Equity Securities and Use
                of Proceeds
            27Item
                3. Defaults Upon Senior
                Securities
            27Item
                4. Submission of Matters to a Vote of Security
                Holders
            27Item
                5. Other Information
            27Item
                6. Exhibits
            27SIGNATURES
            28EXHIBITSIndex
                to Exhibits
            29








2
 Table
          of Contents








**FORWARD-LOOKING
      STATEMENTS**





This
      Form
      10-Q may contain forward-looking statements within the meaning of Section 27A
      of
      the Securities Act of 1933, and Section 21E of the Securities Exchange Act
      of 1934, as amended. Such statements are identified by words such as
      "anticipate," "believe," "estimate," "expect," "intend," "predict," "project,"
      and similar expressions. When we make forward-looking statements, we are basing
      them on management's beliefs and assumptions, using information currently
      available to us. These forward-looking statements are subject to risks,
      uncertainties, and assumptions, including but not limited to, risks,
      uncertainties, and assumptions related to the following:





Ÿ
            changes
                in tax legislation;





Ÿ
            other
                federal and state laws and
                regulations;





Ÿ
            general
                economic conditions;





Ÿ
            competitive
                factors and pricing pressures;





Ÿ
            our
                dependence on key producers, consultants, and services of key
                personnel;





Ÿ
            our
                dependence on persistency of existing
                business;





Ÿ
            our
                ability to achieve our earnings
                projections;





Ÿ
            risks
                associated with acquisitions;





Ÿ
            significant
                intangible assets;





Ÿ
            our
                dependence on a select group of insurance
                companies;





Ÿ
            supplemental
                compensation arrangements with certain insurance companies;
                and





Ÿ
            our
                dependence on information processing systems and risk of errors or
                omissions.








If
      one or
      more of these or other risks or uncertainties materialize, or if our underlying
      assumptions prove to be incorrect, actual results may vary materially from
      those
      anticipated. Any forward-looking statements you read in this Form 10-Q reflect
      our current views with respect to future events and are subject to these and
      other risks, uncertainties, and assumptions relating to our operations, results
      of operations, growth strategy, and liquidity. You should specifically consider
      the factors identified in our Form 10-K for the year ended December 31, 2005,
      included under the caption “Risk Factors,” or in the documents incorporated by
      reference in our Form 10-K, which could cause actual results to differ
      materially from those indicated by the forward-looking statements. In light
      of
      the foregoing risks and uncertainties, you should not unduly rely on such
      forward-looking statements when deciding whether to buy, sell, or hold any
      of
      our securities. We disclaim any intent or obligation to update or alter any
      of
      the forward-looking statements whether in response to new information,
      unforeseen events, changed circumstances, or otherwise.


3
 Table
          of Contents


**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





**CLARK,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**As
      of June 30, 2006 and December 31, 2005**


**(Unaudited)**


**(Dollars
      in thousands except share and per share data)**


**June
                30,**
            
            **December
                31,****2006**
            
            **2005****ASSETS****Current
                Assets**Cash
                and cash equivalents
            
            $
            6,205
            
            $
            5,077Restricted
                cash
            
            
            7,889
            
            
            7,799Accounts
                and notes receivable, net
            
            
            29,839
            
            
            36,893Prepaid
                income taxes
            
            
            3,926
            
            
            3,845Other
                current assets
            
            
            2,559
            
            
            3,527**Total
                Current Assets**
            
            
            50,418
            
            
            57,141**Intangible
                Assets, net**
            
            
            577,037
            
            
            582,544**Equipment
                and Leasehold Improvements, net**
            
            
            11,578
            
            
            12,276**Cash
                Surrender Value of Life Insurance**
            
            
            12,483
            
            
            11,336**Other
                Assets**
            
            
            13,993
            
            
            11,216**Total
                Assets**
            
            $
            665,509
            
            $
            674,513**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                Liabilities**Accounts
                payable
            
            $
            3,667
            
            $
            4,243Accrued
                liabilities
            
            
            35,266
            
            
            40,051Deferred
                revenue
            
            
            4,154
            
            
            2,469Deferred
                tax liabilities
            
            
            96
            
            
            186Recourse
                debt maturing within one year
            
            
            5,602
            
            
            3,730Non-recourse
                debt maturing within one year
            
            
            14,269
            
            
            16,299**Total
                Current Liabilities**
            
            
            63,054
            
            
            66,978**Trust
                Preferred Debt**
            
            
            45,000
            
            
            45,000**Long-Term
                Recourse Debt**
            
            
            1,228
            
            
            1,998**Long-Term
                Non-Recourse Debt**
            
            
            231,568
            
            
            238,296**Deferred
                Tax Liabilities**
            
            
            34,047
            
            
            33,022**Deferred
                Compensation**
            
            
            11,341
            
            
            11,443**Other
                Non-Current Liabilities**
            
            
            7,419
            
            
            7,758**Total
                Liabilities**
            
            
            393,657
            
            
            404,495**Stockholders'
                Equity**Preferred
                stockAuthorized
                - 1,000,000 shares; $.01 par value, none issued
            
            
            -
            
            
            -Common
                stockAuthorized
                - 40,000,000 shares; $.01 par value issued -19,022,352
                shares at June 30, 2006 and 18,892,516 shares at December 31,
                2005
            
            
            191
            
            
            189Paid-in
                capital
            
            
            197,441
            
            
            195,531Retained
                earnings
            
            
            92,785
            
            
            94,103Other
                comprehensive income (loss)
            
            
            991
            
            
            383Deferred
                compensation - 224,702 shares at June 30, 2006 and 181,418 shares
                at
              December
                31, 2005
            
            
            3,264
            
            
            2,746Treasury
                stock, at cost - 1,359,064 shares at June 30, 2006 and 1,383,195
                shares at
              December
                31, 2005
            
            
            (22,820
            )
            
            (22,934
            )**Total
                Stockholders' Equity**
            
            
            271,852
            
            
            270,018**Total
                Liabilities and Stockholders' Equity**
            
            $
            665,509
            
            $
            674,513








See
      accompanying notes to these condensed consolidated financial
      statements.


4
 Table
          of Contents


**CLARK,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME**


**(Unaudited)**


**(Dollars
      in thousands except share and per share data)**








**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Revenue**First
                year commissions and consulting fees
            
            $
            32,819
            
            $
            35,947
            
            $
            64,440
            
            $
            65,167Renewal
                commissions and related fees
            
            
            31,659
            
            
            30,819
            
            
            67,509
            
            
            66,924Reimbursable
                expenses
            
            
            1,897
            
            
            1,680
            
            
            3,902
            
            
            3,303**Total
                Revenue**
            
            
            66,375
            
            
            68,446
            
            
            135,851
            
            
            135,394**Operating
                Expenses**Commissions
                and fees
            
            
            14,105
            
            
            14,240
            
            
            28,626
            
            
            28,042General
                and administrative
            
            
            41,008
            
            
            41,192
            
            
            83,824
            
            
            81,658Reimbursable
                expenses
            
            
            1,897
            
            
            1,680
            
            
            3,902
            
            
            3,303Amortization
            
            
            3,758
            
            
            3,843
            
            
            7,515
            
            
            7,687**Total
                Operating Expenses**
            
            
            60,768
            
            
            60,955
            
            
            123,867
            
            
            120,690**Operating
                Income**
            
            
            5,607
            
            
            7,491
            
            
            11,984
            
            
            14,704**Other
                Income (Expense), net**
            
            
            -
            
            
            1,615
            
            
            1
            
            
            1,615**Interest,
                net**Income
            
            
            140
            
            
            107
            
            
            299
            
            
            271Expense
            
            
            (5,502
            )
            
            (5,444
            )
            
            (10,972
            )
            
            (10,996
            )**Total
                Interest, net**
            
            
            (5,362
            )
            
            (5,337
            )
            
            (10,673
            )
            
            (10,725
            )Income
                before taxes
            
            
            245
            
            
            3,769
            
            
            1,312
            
            
            5,594Income
                taxes
            
            
            (100
            )
            
            (897
            )
            
            (534
            )
            
            (1,620
            )**Net
                Income**
            
            $
            145
            
            $
            2,872
            
            $
            778
            
            $
            3,974Basic
                Earnings per Common Share
            
            $
            0.01
            
            $
            0.16
            
            $
            0.04
            
            $
            0.22Weighted
                average shares outstanding - Basic
            
            
            17,781,328
            
            
            18,357,568
            
            
            17,716,442
            
            
            18,336,473Diluted
                Earnings per Common Share
            
            $
            0.01
            
            $
            0.16
            
            $
            0.04
            
            $
            0.22Weighted
                average shares outstanding - Diluted
            
            
            17,903,297
            
            
            18,476,680
            
            
            17,821,851
            
            
            18,479,750Cash
                dividends:Paid
            
            $
            0.06
            
            $
            0.06
            
            $
            0.12
            
            $
            0.06Declared
            
            $
            0.06
            
            $
            0.06
            
            $
            0.12
            
            $
            0.12
































See
      accompanying notes to these condensed consolidated financial
      statements.


5
 Table
          of Contents


**CLARK,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH
      FLOWS**


**(Unaudited)**


**(Dollars
      in thousands)**








**Six
                Months Ended June 30,****2006**
            
            **2005****Net
                Cash from Operating Activities**
            
            $
            15,232
            
            $
            17,764**Investing
                Activities**Purchases
                of businesses, net of cash acquired
            
            
            (3,108
            )
            
            (9,253
            )Purchases
                of equipment
            
            
            (1,672
            )
            
            (2,663
            )Cash
                (used in) provided by investing activities
            
            
            (4,780
            )
            
            (11,916
            )**Financing
                Activities**Proceeds
                from borrowings
            
            
            69,200
            
            
            -Repayment
                of borrowings
            
            
            (76,856
            )
            
            (14,726
            )Dividends
                paid
            
            
            (2,090
            )
            
            (1,093
            )Cash
                restricted for the repayment of non-recourse notes
            
            
            (90
            )
            
            3,959Employee
                benefit plans
            
            
            512
            
            
            673Repurchase
                of company stock
            
            
            -
            
            
            (739
            )Cash
                (used in) provided by financing activities
            
            
            (9,324
            )
            
            (11,926
            )**Net
                Increase (Decrease) in Cash and Cash Equivalents**
            
            
            1,128
            
            
            (6,078
            )**Cash
                and Cash Equivalents at Beginning of Period**
            
            
            5,077
            
            
            23,199**Cash
                and Cash Equivalents at End of Period**
            
            $
            6,205
            
            $
            17,121*Supplemental
                Disclosure for Cash Paid during the Period:*Interest
                paid
            
            $
            10,753
            
            $
            10,660Income
                taxes, net of refunds
            
            
            77
            
            
            223*Supplemental
                Non-Cash Information:*Fair
                value of common stock issued in connection with acquisitions and
                acquisition contingent payouts
            
            $
            -
            
            $
            539Fair
                value of common stock issued in connection with the purchase of minority
                interest
            
            
            1,000
            
            
            -






































See
      accompanying notes to these condensed consolidated financial
      statements.


6
 Table
          of Contents


**CLARK,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**


**JUNE
      30, 2006**


**(Unaudited)**





*(Tables
      shown in thousands of dollars, except share and per share
      amounts)*









**1.**  **NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**





*Basis
      of Presentation -* The
      condensed consolidated financial statements include the accounts of Clark,
      Inc.
      (“the Company”) and its wholly-owned subsidiaries. Through
      the Company’s four operating segments, Corporate Solutions, Healthcare Group,
      Pearl Meyer & Partners, and Federal Policy Group, the Company designs,
      markets, and administers compensation and benefit programs for companies
      supplementing and securing employee benefits and provides executive compensation
      and related consulting services to U.S. corporations, banks, and healthcare
      organizations. The Company assists its clients in using customized life
      insurance products to finance their long-term benefit liabilities. In addition,
      the Company owns Clark Securities, Inc. (“CSI”), a registered broker/dealer
      through which it sells all its securities products and receives related
      commissions. All
      significant intercompany amounts and transactions have been eliminated in the
      accompanying condensed consolidated financial statements.





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in conformity with U.S. generally accepted accounting principles
      (“GAAP”) for interim financial information in accordance with the instructions
      to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
      all of the information and footnotes required by GAAP for complete financial
      statements. In the Company’s opinion, all adjustments, including normally
      recurring accruals, considered necessary for a fair presentation have been
      included. Operating results for the three and six months ended June 30, 2006,
      are not necessarily indicative of the results that may be expected for the
      year
      ending December 31, 2006, or any other period.





The
      balance sheet at December 31, 2005 has been derived from the audited financial
      statements at that date but does not include all of the information and
      footnotes required by GAAP for complete financial statements.





For
      further information, including a summary of significant accounting policies,
      refer to the consolidated financial statements and footnotes thereto included
      in
      the Company’s Annual Report on Form 10-K for the year ended December 31,
      2005.





Certain
      2005 amounts have been reclassified to conform with the 2006 presentation due
      to
      the combination of Executive Benefits Practice, Banking Practice, and Insurance
      Company Practice into Corporate Solutions, which was effective January 1, 2006.
      An adjustment of approximately $820 thousand was recorded in the second quarter
      of 2006 to correct the liability relating to an employee benefit
      plan.





**2. 
      RECENT ACCOUNTING PRONOUNCEMENTS**




In
      June
      2006, the Financial Accounting Standards Board ("FASB") issued FASB
      Interpretation ("FIN") No. 48, Accounting for Uncertainty in Income Taxes -
      an
      Interpretation of FASB Statement No. 109.  This Interpretation clarifies
      the accounting for uncertainty in income taxes recognized in an enterprise's
      financial statements in accordance with FASB Statement No. 109, *Accounting
      for Income Taxes* . 
      This Interpretation prescribes a recognition threshold and measurement of a
      tax
      position taken or expected to be taken in a tax return.  This
      Interpretation is effective for fiscal years beginning after December 15,
      2006.  The Company is currently evaluating the impact to its financial
      statements of adoption of this Interpretation but it is not expected to be
      material.





**3.
      SHARE BASED COMPENSATION**





On
      January 1, 2006, the Company adopted SFAS 123(R), “ *Share-Based
      Payment* ,”
which
      requires the measurement and recognition of compensation expense, based on
      estimated fair values, for all share-based awards, made to employees and
      directors, including stock options, restricted stock, restricted stock units,
      and performance share units. In March 2005, the Securities and Exchange
      Commission issued Staff Accounting Bulletin (SAB) No. 107 relating to SFAS
      123(R). The Company has applied the provisions of SAB 107 in its adoption of
      SFAS 123(R).





7
 Table
          of Contents
 **CLARK,
              INC. AND SUBSIDIARIES**
 **NOTES
              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(Unaudited)**





The
      Company adopted SFAS 123(R) using the modified prospective application
      transition method, as of January 1, 2006, the first day of the Company’s fiscal
      year 2006. The condensed consolidated financial statements, as of and for the
      three and six months ended June 30, 2006, reflects the impact of SFAS 123(R).
      In
      accordance with the modified prospective application transition method, the
      Company’s condensed consolidated financial statements for prior periods have not
      been restated to reflect, and do not include, the impact of SFAS
      123(R).





Prior
      to
      the adoption of SFAS 123(R), the Company accounted for share-based awards to
      employees and directors using the intrinsic value method in accordance with
      Accounting Principles Board (APB) Opinion No. 25, “ *Accounting
      for Stock Issued to Employees* ”.
      Additionally, prior to January 1, 2006, the Company provided pro forma
      disclosure amounts in accordance with SFAS No. 148, “ *Accounting
      for Stock-Based Compensation - Transition and Disclosure* ,”
as
      if
      the fair value method defined by SFAS 123 had been applied to stock-based
      compensation. Under APB Opinion No. 25, the exercise price of the Company’s
      stock options granted to employees and directors equaled the fair market value
      of the underlying stock at the grant date, therefore, no share-based
      compensation expense was recognized in the Company’s condensed consolidated
      statement of income.





SFAS
      123(R) requires companies to estimate the fair value of share-based awards
      on
      the date of grant using an option-pricing model, where applicable. Share-based
      compensation expense recognized in the Company’s condensed consolidated
      statement of income for the three and six months ended June 30, 2006 includes
      compensation expense for share-based awards granted (i) prior to, but not yet
      vested as of December 31, 2005, based on the grant date fair value estimated
      in
      accordance with the original provisions of SFAS 123, and (ii) subsequent to
      December 31, 2005, based on the grant date fair value estimated in accordance
      with the provisions of SFAS 123(R). The Company recognizes these compensation
      costs net of a forfeiture rate and recognizes the compensation costs for only
      those shares expected to vest on a straight-line basis over the requisite
      service period of the award, which is generally the option vesting term of
      three
      to four years for restricted stock and performance share units and four years
      for stock options, respectively. SFAS 123(R) requires forfeitures to be
      estimated at the time of grant and revised, if necessary, in subsequent periods
      if actual forfeitures differ from those estimates. In the Company’s pro forma
      information required under SFAS 123 for periods prior to fiscal 2006, the
      Company accounted for forfeitures as they occurred.





As
      a
      result of SFAS 123(R) adoption, the impact to the condensed consolidated
      financial statements for income before income taxes and net income for the
      three
      and six months ended June 30, 2006 was $273 thousand and $411 thousand; and
      $162
      thousand and $244 thousand lower, respectively, than if we continued to account
      for stock-based compensation under APB 25. In addition, prior to the adoption
      of
      SFAS 123(R), the Company presented the tax benefit of stock option exercises
      as
      operating cash flows. Upon adoption of SFAS 123(R), tax benefits resulting
      from
      tax deductions in excess of compensation cost recognized for those options
      are
      classified as financing cash flows.





As
      of
      June 30, 2006, $1.3 million of total unrecognized compensation cost related
      to
      stock based compensation is expected to be recognized over a weighted-average
      period of 3 years. The total unrecognized stock based compensation cost to
      be
      recognized in future periods as of June 30, 2006 does not consider the effect
      of
      stock options that may be issued in subsequent periods.





The
      fair
      value of each option grant was estimated at the date of grant using the
      Black-Scholes option pricing model with the following weighted average
      assumptions used for grants in 2006 and 2005, respectively:





**June
                30,****2006**
            **2005**Dividend
                yield
            2.1%
            NoneVolatility
            51.1%
            57.1%Risk-free
                interest rates
            4.6%
            4.2%Expected
                life (years)
            5
            5





The
      pro
      forma information regarding net income and earnings per share required by SFAS
      No. 123 has been determined as if the Company accounted for its stock-based
      compensation plans under the fair value method. Had compensation cost for the
      Company’s stock-based compensation plans been determined in accordance with SFAS
      No. 123, as amended by SFAS No. 148, *Accounting
      for Stock-Based Compensation - Transition and Disclosure - An Amendment of
      FASB
      Statement No. 123* ,
      the
      Company’s net income and earnings per share would have been reduced to the pro
      forma amounts indicated below:


8
 Table
          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(Unaudited)**





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2005**
            
            **2005****Net
                Income**As
                reported
            
            $
            2,872
            
            $
            3,974Deduct:
                stock option compensation expense, net of tax
            
            
            (121
            )
            
            (569
            )Pro
                forma
            
            $
            2,751
            
            $
            3,405**Basic
                Earnings per Common Share**As
                reported
            
            $
            0.16
            
            $
            0.22Pro
                forma
            
            $
            0.15
            
            $
            0.19**Diluted
                Earnings per Common Share**As
                reported
            
            $
            0.16
            
            $
            0.22Pro
                forma
            
            $
            0.15
            
            $
            0.18





*Stock
      Option Plan* .
      The
      Company has various stock options plans for both employees and non-employee
      directors which have been approved by the Board of Directors. Vesting of stock
      options is generally between three to five years and expires ten years from
      the
      grant date. For the three and six months ended June 30, 2006, there is
      approximately $227 thousand and $317 thousand, respectively, of expense included
      in the condensed consolidated statement of income associated with this plan.
      There were no expenses for this plan for the three and six months ended June
      30,
      2005. As
      of
      June 30, 2006, approximately 3.5 million options have been granted under these
      programs and a total of approximately 2.8 million shares of the Company’s common
      stock remain available for grant for all active plans.





The
      following table summarizes the combined status of all of the Company’s stock
      option plans:





**Options**
            
            **Weighted
                Average**
              **Exercise
                Price****Outstanding
                at January 1, 2004**
            
            1,585,272
            
            $
            15.41Granted
            
            330,000
            
            
            19.36Exercised
            
            (153,500
            )
            
            10.02Forfeited
            
            (323,636
            )
            
            20.39**Outstanding
                at December 31, 2004**
            
            1,438,136
            
            
            17.02Granted
            
            182,000
            
            
            15.03Exercised
            
            (64,100
            )
            
            11.02Forfeited
            
            (118,549
            )
            
            18.02**Outstanding
                at December 31, 2005**
            
            1,437,487
            
            
            16.82Granted
            
            252,430
            
            
            12.41Exercised
            
            (53,500
            )
            
            9.56Forfeited
            
            (16,233
            )
            
            15.10**Outstanding
                at June 30, 2006**
            
            1,620,184
            
            $
            16.40**Exercisable
                at June 30, 2006**
            
            1,352,595**Exercisable
                at December 31, 2005**
            
            1,308,077**Exercisable
                at December 31, 2004**
            
            1,194,587





9
 Table
          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(Unaudited)**





The
      following table summarizes the stock options outstanding and exercisable as
      of
      June 30, 2006:





**Options
                Outstanding**
            
            **Options-Exercisable****Range
                of**
              **Exercise
                Prices**
            
            **Number**
              **Outstanding**
            
            **Weighted
                Average Remaining**
              **Contractual
                Life(years)**
            
            **Weighted
                Average**
              **Exercise
                Price**
            
            **Number**
              **Exercisable**
            
            **Weighted
                Average Exercise Price**$4.80
                - $7.00
            
            
            61,101
            
            
            0.7
            
            $
            5.70
            
            
            61,101
            
            $
            5.70$9.00
            
            
            54,416
            
            
            1.9
            
            
            9.00
            
            
            54,416
            
            
            9.00$9.94
                - $11.50
            
            
            175,830
            
            
            6.8
            
            
            10.58
            
            
            111,007
            
            
            10.47$11.60
                - $14.40
            
            
            357,400
            
            
            8.3
            
            
            13.58
            
            
            154,634
            
            
            13.34$14.75
                - $15.96
            
            
            214,000
            
            
            6.5
            
            
            15.27
            
            
            214,600
            
            
            15.27$16.65
                - $18.13
            
            
            138,102
            
            
            5.6
            
            
            17.19
            
            
            138,102
            
            
            17.19$18.49
                - $19.70
            
            
            314,000
            
            
            7.5
            
            
            19.28
            
            
            314,000
            
            
            19.28$20.30
                - $22.90
            
            
            100,335
            
            
            7.0
            
            
            21.72
            
            
            100,335
            
            
            21.72$23.24
                - $25.28
            
            
            195,000
            
            
            5.7
            
            
            25.12
            
            
            195,000
            
            
            25.12$27.49
            
            
            10,000
            
            
            6.1
            
            
            27.49
            
            
            10,000
            
            
            27.491,620,184
            
            
            
            
            
            
            
            
            1,352,595





*Performance
      Share Award (“Restricted Stock”).* On
      July
      26, 2005, the Compensation Committee of the Board of Directors approved a Long
      Term Incentive Compensation Plan. One of the components of this plan is
      restricted stock. There are five approved participants in this plan. Restricted
      stock is awarded based upon achievement of three-year performance targets for
      cumulative earnings per share for the period 2005 through 2007 and will
      cliff-vest effective December 31, 2007. Restricted stock awards for 2007 will
      be
      made, as determined by the Compensation Committee, with cliff vesting effective
      December 31, 2007. For the three and six months ended June 30, 2006, there
      was
      approximately $24 thousand and $48 thousand of expense, respectively, included
      in the condensed consolidated statements of income associated with this plan.
      There was no expense for this plan for the three and six months ended June
      30,
      2005.





*Stock
      Purchase Plan.* On
      January 28, 2003, the Board of Directors adopted the amended and restated
      Employee Stock Purchase Plan (“ESPP”), under which a total of 400 thousand
      shares of common stock have been reserved for issuance. Any employee who has
      been employed for 30 days is eligible to participate in offerings under the
      Stock Purchase Plan. During
      the three months ended June 30, 2006 and 2005, the Company's employees purchased
      10,881 shares and 11,312 shares, respectively, of common stock at an average
      cost to employees of $11.22 and $12.18, respectively.  During the six
      months ended June 30, 2006 and 2005, the Company's employees
      purchased 25,029 shares and 20,622 shares, respectively, of common stock at
      an average cost to employees of $10.55 and $12.62, respectively. For the
      three and six months ended June 30, 2006, there is approximately $25 thousand
      and $47 thousand of expense, respectively, included in the condensed
      consolidated statement of income associated with this plan. There was no expense
      for this plan for the three and six months ended June 30, 2005.





**4.
      RESTRUCTURING**





In
      the
      fourth quarter of 2003, the Company reorganized its executive compensation
      consulting practices and recorded a charge of $7.5 million relating to the
      reorganization, of which $2.4 million remains accrued on the condensed
      consolidated balance sheet as of June 30, 2006. Effective January 1, 2005,
      the
      Human Capital Practice was merged into Executive Benefits Practice which, as
      of
      January 1, 2006, is part of the Corporate Solutions Practice. In the first
      and
      second quarter of 2006, the Company adjusted its estimate of net future lease
      costs based upon accretion. In addition, during the second quarter of 2006,
      the
      Company adjusted its estimate for employee termination costs due to settlement
      of a dispute with a former employee. The adjustment amounts are included in
      general and administrative expenses in the condensed consolidated statement
      of
      income for the three and six months ended June 30, 2006.


10
 Table
          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(Unaudited)**


The
      Company will continue to evaluate the remaining restructuring reserve as plans
      are being executed. As a result, there may be adjustments to the reserve in
      future periods. A summary of the activity in the reserve account as of June
      30,
      2006, is as follows:





**Reserve
                Balance**
              **January
                1, 2006**
            
            **Cash**
              **Payments**
            
            **Adjustments**
            
            **Reserve
                Balance******
              **June
                30, 2006**Employee
                termination costs
            
            $
            325
            
            $
            -
            
            $
            (120
            )
            $
            205Lease
                costs
            
            
            2,400
            
            
            (236
            )
            
            16
            
            
            2,180Total
            
            $
            2,725
            
            $
            (236
            )
            $
            (104
            )
            $
            2,385





**5.**  **ACCOUNTS
      RECEIVABLE**





Major
      categories of accounts receivable are as follows:





**As
                of**
              **June
                30, 2006**
            
            **As
                of**
              **December
                31, 2005**Accounts
                receivable - trade
            
            $
            31,744
            
            $
            38,747Accounts
                receivable allowance
            
            
            (1,905
            )
            
            (1,854
            )$
            29,839
            
            $
            36,893





A
      summary
      of the activity in the allowance for uncollectible accounts receivables is
      as
      follows:





**Six
                Months Ended**
              **June
                30, 2006**
            
            **Year
                Ended**
              **December
                31, 2005**Beginning
                balance
            
            $
            (1,854
            )
            $
            (1,467
            )Write
                offs
            
            
            303
            
            
            661Expense
            
            
            (354
            )
            
            (1,048
            )Ending
                balance
            
            $
            (1,905
            )
            $
            (1,854
            )





As
      of
      June 30, 2006 and December 31, 2005, there were approximately $910 thousand
      and
      $670 thousand, respectively, of unbilled receivables included in accounts
      receivable on the condensed consolidated balance sheets. These unbilled amounts,
      the majority of which relate to in-process consulting projects, are typically
      billed during the quarter immediately following the reporting
      period.





**6.**  **GOODWILL
      AND OTHER INTANGIBLE ASSETS**





Changes
      in the carrying amount of goodwill for the six months ended June 30, 2006,
      by
      reporting units are as follows:





**Balance**
              **January
                1, 2006**
            
            **Earnouts/**
              **Other**
            
            **Balance**
              **June
                30, 2006**Corporate
                Solutions
            
            $
            81,986
            
            $
            1,950
            
            $
            83,936Healthcare
                Group
            
            
            14,076
            
            
            -
            
            
            14,076Management
                Science Associates
            
            
            5,010
            
            
            -
            
            
            5,010Pearl
                Meyer & Partners
            
            
            36,981
            
            
            -
            
            
            36,981Federal
                Policy Group
            
            
            8,766
            
            
            -
            
            
            8,766Corporate
            
            
            4,090
            
            
            7
            
            
            4,097TOTAL
            
            $
            150,909
            
            $
            1,957
            
            $
            152,866





11
 Table
          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(Unaudited)**


Information
      regarding the Company’s other intangible assets follows:





**As
                of June 30, 2006**
            
            **As
                of December 31, 2005****Gross**
              **Amount**
            
            **Accumulated**
              **Amortization**
            
            **Net**
            
            **Gross**
              **Amount**
            
            **Accumulated**
              **Amortization**
            
            **Net**Inforcerevenue
            
            $
            500,555
            
            $
            (81,305
            )
            $
            419,250
            
            $
            500,555
            
            $
            (74,691
            )
            $
            425,864Non-competeagreements
            
            
            12,250
            
            
            (7,329
            )
            
            4,921
            
            
            12,199
            
            
            (6,428
            )
            
            5,771Total
            
            $
            512,805
            
            $
            (88,634
            )
            $
            424,171
            
            $
            512,754
            
            $
            (81,119
            )
            $
            431,635





Amortization
      expense of other intangible assets was $3.8 million for both the three months
      ended June 30, 2006 and June 30, 2005. Amortization expense of other intangible
      assets was $7.5 million and $7.7 million for the six months ended June 30,
      2006
      and June 30, 2005, respectively.





The
      Company estimates that its amortization from 2006 through 2010 for intangible
      assets related to all acquisitions consummated through June 30, 2006 will be
      approximately as follows:





Year
            
            Amount2006
            
            $
            15,0192007
            
            
            14,6312008
            
            
            14,1982009
            
            
            13,3502010
            
            
            13,802





**7.**  **CONTINGENT
      CONSIDERATION**





As
      a
      result of the Company’s acquisition program, the Company has approximately $8.7
      million of contingent consideration potentially due to the former owners of
      its
      acquired entities, including $3.1 million that has been earned and is accrued
      on
      the condensed consolidated balance sheet as of June 30, 2006. If and when the
      acquired entities meet certain criteria negotiated at the time of the purchase,
      these amounts are payable as additional consideration. A summary of the amounts
      payable if the criteria are met is as follows for acquisitions that were
      completed as of June 30, 2006:





**Potential
                Amounts Payable in**
            
            **Cash**2006
            
            $
            1,1032007
            
            
            4,0002008
            
            
            -2009
            
            
            6002010
            
            
            6002011
                and later
            
            
            2,400$
            8,703





**8.**  **STATEMENT
      OF COMPREHENSIVE INCOME**





Under
      SFAS No. 130, *Comprehensive
      Income* ,
      the
      comprehensive income for the Company consists of net income and changes in
      fair
      value of interest rate swaps, net of tax. Shown below is the Company’s
      comprehensive income:





**Three
                Months Ended June 30,**
            
            **Six
                Months Ended****June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Net
                income
            
            $
            145
            
            $
            2,872
            
            $
            778
            
            $
            3,974Change
                in fair value of interest rateswap,
                net of tax
            
            
            365
            
            
            (230
            )
            
            608
            
            
            5Comprehensive
                income
            
            $
            510
            
            $
            2,642
            
            $
            1,386
            
            $
            3,979






12
 Table
            of Contents
 **CLARK,
              INC. AND SUBSIDIARIES**
 **NOTES
              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(Unaudited)**


**9.**  **EARNINGS
      PER SHARE**





The
      following table sets forth the computation of basic and diluted earnings per
      common share:





**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Numerator
                for basic and diluted earnings per
              common
                share
            
            $
            145
            
            $
            2,872
            
            $
            778
            
            $
            3,974**Denominator:**Basic
                earnings per common share -weighted
                average shares outstanding
            
            
            17,781,328
            
            
            18,357,568
            
            
            17,716,442
            
            
            18,336,473Effect
                of dilutive securities:Stock
                options
            
            
            121,969
            
            
            119,112
            
            
            105,409
            
            
            130,348Contingent
                shares earned not issued
            
            
            -
            
            
            -
            
            
            -
            
            
            12,929Diluted
                earnings per share - weighted average
              shares
                plus assumed conversions
            
            
            17,903,297
            
            
            18,476,680
            
            
            17,821,851
            
            
            18,479,750Basic
                earnings per common share
            
            $
            0.01
            
            $
            0.16
            
            $
            0.04
            
            $
            0.22Diluted
                earnings per common share
            
            $
            0.01
            
            $
            0.16
            
            $
            0.04
            
            $
            0.22





For
      the
      three and six months ended June 30, 2006, there are approximately 1.3 million
      and 1.2 million, respectively, of outstanding stock options which are not
      included in the computation of diluted earnings per share because the exercise
      prices of the options were greater than the average market prices of the
      Company’s common shares during the respective periods. For the three and six
      months ended June 30, 2005, there are approximately 950 thousand 
outstanding stock options which are not included in the computation of diluted
      earnings per share because the exercise prices of the options were greater
      than
      the average market prices of the Company’s common shares during the respective
      periods. The range of exercise prices for these antidilutive stock options
      was
      between $12.49 and $25.28 at June 30, 2006, and $15.51 and $25.28 at June 30,
      2005.





**10.
      FINANCIAL INSTRUMENTS**





The
      Company has limited transactions that fall under the accounting rules of SFAS
      No. 133, *Accounting
      for Derivative Instruments and Hedging Activities* ,
      as
      amended by SFAS No. 137, SFAS No. 138 and SFAS No. 149. From time to time,
      the
      Company uses financial instruments, including interest rate swap agreements,
      to
      manage exposure to interest rates. On November 15, 2005, we entered into an
      interest rate swap with an initial notional amount of $4.8 million and an
      effective date of January 1, 2006, which increases $1.4 million each calendar
      quarter until December 31, 2007, and then remains at $16 million until maturity.
      During 2005, 2004, and 2003, the Company entered into several other interest
      rate swaps to hedge its LIBOR-based debt. These swaps have been designated
      as
      cash flow hedges. As such, the changes in the fair value of the interest rate
      swaps are recorded in other comprehensive income (“OCI”) for the effective
      portion of the hedge, while the ineffective portion is recorded immediately
      in
      earnings.  Amounts are reclassified from OCI to earnings as the interest
      rate swaps effect earnings.  There
      have been no charges to earnings for ineffectiveness of interest rate hedges
      for
      the three and six months ended June 30, 2006. The fair value of these interest
      rate swap agreements, based upon bank quotes, was an asset of approximately
      $1.8
      million at June 30, 2006. The terms of these interest rate swaps are as follows
      (fair value in thousands):





**Effective****Date**
            
            **Maturity
                Date**
            
            **Notional
                Amount at**
              **June
                30, 2006**
            
            **Fixed
                Rate to be Paid**
            
            **Variable
                Rate**
              **to
                be Received**
            
            **Fair
                Value as of**
              **June
                30, 2006**January
                1, 2006
            
            
            December
                31, 2015
            
            $
            7.6
                million
            
            
            5.26
            %
            
            LIBOR
            
            $
            385June
                3, 2005
            
            
            December
                31, 2009
            
            $
            12.0
                million
            
            
            4.05
            %
            
            LIBOR
            
            
            588February
                25, 2005
            
            
            December
                31, 2009
            
            $
            10.0
                million
            
            
            4.31
            %
            
            LIBOR
            
            
            400May
                18, 2004
            
            
            March
                31, 2009
            
            $
            7.0
                million
            
            
            4.44
            %
            
            LIBOR
            
            
            191January
                7, 2003
            
            
            December
                31, 2007
            
            $
            8.4
                million
            
            
            2.85
            %
            
            LIBOR
            
            
            193**Total**
            
            
            
            
            $
            45.0
                million
            
            
            
            
            
            
            
            $
            1,757






13
 Table
            of Contents
 **CLARK,
              INC. AND SUBSIDIARIES**
 **NOTES
              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(Unaudited)**


**11.**  **DIVIDENDS**





On
      July
      25, 2006, the Board of Directors authorized a dividend of $0.06 per share
      (approximately $1.1 million) to stockholders of record as of September 1, 2006,
      payable on October 1, 2006. On April 25, 2006, the Board of Directors authorized
      a dividend of $0.06 per share (approximately $1.1 million) to stockholders
      of
      record as of June 1, 2006, payable on July 1, 2006. On February 1, 2006, the
      Board of Directors authorized a dividend of $0.06 per share (approximately
      $1.1
      million) to stockholders of record as of March 1, 2006, payable on April 1,
      2006.





During
      each of its 2005 quarterly Board of Directors meetings, the Board authorized
      the
      Company to pay a quarterly dividend of $0.06 per share (approximately $1.1
      million). The dividends were paid on January 1, 2006, October 1, 2005, July
      1,
      2005, and April 1, 2005 to stockholders of record as of December 1, 2005,
      September 1, 2005, June 1, 2005, and March 1, 2005, respectively.





**12.**  **SEGMENTS
      AND RELATED INFORMATION**





The
      Company has four reportable segments:





·
            Corporate
                Solutions - provides strategic investment solutions, consulting,
                and
                administrative services to clients.





·
            Healthcare
                Group - provides specialized compensation and benefit services for
                large
                and medium sized not-for-profit healthcare
                organizations.





·
            Pearl
                Meyer & Partners - specializes in executive compensation and retention
                programs.





·
            Federal
                Policy Group - provides a variety of legislative and regulatory strategic
                services.





The
      segment information as of, and for the periods ended June 30, 2006 and 2005,
      for
      the Corporate Solutions segment reflects the results of, and information related
      to, the Executive Benefits Practice, the Banking Practice, and the Insurance
      Company Practice, which were combined into one segment effective January 1,
      2006. Corporate/CSI includes the results of Clark Benson and MedEx for the
      three
      and six months ended June 30, 2006.





The
      four
      reportable segments operate as independent and autonomous business units with
      a
      central corporate staff in North Barrington, Illinois responsible for finance,
      strategic planning, human resources and company-wide policies. Each segment
      has
      its own client base as well as its own marketing, administration, and
      management.





The
      Company has disclosed income from operations as the primary measure of segment
      earnings (loss). This is the measure of profitability used by the Company’s
      chief operating decision-maker and the most consistent with the presentation
      of
      profitability reported within the condensed consolidated financial statements.
      The accounting policies of the business segment reports are the same as those
      described in Note 1 “ *Nature
      of Operations and Summary of Significant Accounting Policies* ”
in
      the
      Company’s Annual Report on Form 10-K for the year ended December 31,
      2005.





The
      Company evaluates performance and allocates resources based on operating income
      before income taxes, interest, and corporate administrative expenses. There
      are
      no material inter-segment revenues or expenses.





Segment
      information for the three and six month periods ended June 30, 2006 and 2005,
      is
      as follows:


14
 Table
          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(Unaudited)**




**Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****Revenues**Corporate
                  Solutions
              
              $
              43,783
              
              $
              45,550
              
              $
              88,476
              
              $
              90,051Healthcare
                  Group
              
              
              10,173
              
              
              9,725
              
              
              21,625
              
              
              19,906Pearl
                  Meyer & Partners
              
              
              7,352
              
              
              8,274
              
              
              15,374
              
              
              16,528Federal
                  Policy Group
              
              
              2,812
              
              
              2,932
              
              
              5,761
              
              
              5,832Total
                  segments - reported
              
              
              64,120
              
              
              66,481
              
              
              131,236
              
              
              132,317Corporate/CSI
              
              
              2,255
              
              
              1,965
              
              
              4,615
              
              
              3,077Total
                  consolidated - reported
              
              $
              66,375
              
              $
              68,446
              
              $
              135,851
              
              $
              135,394**Operating
                  Income (Loss) and Income Before Taxes**Corporate
                  Solutions
              
              $
              6,573
              
              $
              7,495
              
              $
              12,795
              
              $
              14,603Healthcare
                  Group
              
              
              1,162
              
              
              1,416
              
              
              3,888
              
              
              3,602Pearl
                  Meyer & Partners
              
              
              761
              
              
              1,063
              
              
              1,965
              
              
              2,000Federal
                  Policy Group
              
              
              411
              
              
              655
              
              
              971
              
              
              936Total
                  segments - reported
              
              
              8,907
              
              
              10,629
              
              
              19,619
              
              
              21,141Corporate/CSI
              
              
              (3,300
              )
              
              (3,138
              )
              
              (7,635
              )
              
              (6,437
              )Other
                  income (expense)
              
              
              -
              
              
              1,615
              
              
              1
              
              
              1,615Interest
                  - net
              
              
              (5,362
              )
              
              (5,337
              )
              
              (10,673
              )
              
              (10,725
              )Income
                  before taxes
              
              $
              245
              
              $
              3,769
              
              $
              1,312
              
              $
              5,594**Depreciation
                  and Amortization**Corporate
                  Solutions
              
              $
              4,005
              
              $
              4,132
              
              $
              8,016
              
              $
              8,272Healthcare
                  Group
              
              
              409
              
              
              534
              
              
              819
              
              
              1,068Pearl
                  Meyer & Partners
              
              
              117
              
              
              126
              
              
              238
              
              
              252Federal
                  Policy Group
              
              
              100
              
              
              100
              
              
              199
              
              
              201Total
                  segments - reported
              
              
              4,631
              
              
              4,892
              
              
              9,272
              
              
              9,793Corporate/CSI
              
              
              293
              
              
              342
              
              
              609
              
              
              679Total
                  consolidated - reported
              
              $
              4,924
              
              $
              5,234
              
              $
              9,881
              
              $
              10,472**Capital
                  Expenditures**Corporate
                  Solutions
              
              $
              679
              
              $
              963
              
              $
              1,279
              
              $
              1,693Healthcare
                  Group
              
              
              65
              
              
              64
              
              
              82
              
              
              416Pearl
                  Meyer & Partners
              
              
              42
              
              
              390
              
              
              62
              
              
              482Federal
                  Policy Group
              
              
              3
              
              
              -
              
              
              3
              
              
              -Total
                  segments - reported
              
              
              789
              
              
              1,417
              
              
              1,426
              
              
              2,591Corporate/CSI
              
              
              225
              
              
              143
              
              
              246
              
              
              72Total
                  consolidated - reported
              
              $
              1,014
              
              $
              1,560
              
              $
              1,672
              
              $
              2,663**June
                  30,**
              
              
              **December
                  31,****Identifiable
                  Assets**
              
              
              
              
              
              
              
              
              **2006**
              
              
              **2005**Corporate
                  Solutions
              
              
              
              
              
              
              
              $
              539,299
              
              $
              551,509Healthcare
                  Group
              
              
              
              
              
              
              
              
              29,240
              
              
              30,336Pearl
                  Meyer & Partners
              
              
              
              
              
              
              
              
              47,544
              
              
              48,100Federal
                  Policy Group
              
              
              
              
              
              
              
              
              11,107
              
              
              10,891Total
                  segments - reported
              
              
              
              
              
              
              
              
              627,190
              
              
              640,836Corporate/CSI
              
              
              
              
              
              
              
              
              38,319
              
              
              33,678Total
                  consolidated - reported
              
              
              
              
              
              
              
              $
              665,509
              
              $
              674,513









15
 Table
          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(Unaudited)**


**13.
      LITIGATION AND CONTINGENCIES**





From
      time
      to time, the Company is involved in various claims and lawsuits incidental
      to
      its business ,
      including claims and lawsuits alleging breaches of contractual obligations
      under
      agreements with its employee consultants and independent producers. The
      following is a summary of the current material legal proceedings pending against
      the Company.





**Independent
      Sales Producers’ Disputes**





In
      March
      2004, two of the Company’s independent sales producers exercised their
      termination rights under their agreement(s) with the Company. Included in the
      Company’s condensed consolidated balance sheets is a receivable of approximately
      $1.4 million from these two producers and a related salesperson with respect
      to
      certain chargeback commissions to be repaid to the Company from the surrender
      of
      policies in 2003. Upon termination, the producers disputed the chargeback and
      asserted other miscellaneous claims. The producers entered into an arbitration
      agreement with the Company, dated May 23, 2005, in order to resolve the dispute
      regarding chargebacks with an arbitration hearing likely to occur in 2006.
      While
      it is not possible to predict with certainty the outcome of the disputes, the
      Company does not believe resolution will have a material adverse effect on
      its
      financial position or results of operations.





**epicRealm
      Licensing**





On
      August
      8, 2005, an action was commenced by epicRealm in the U.S. District Court,
      Marshall, Texas, in which epicRealm claims that the Company and several other
      unrelated entities have infringed two epicRealm patents relating to online
      generation of dynamic web pages. The Plaintiff seeks unspecified actual and
      enhanced (based on asserted willful infringement) damages, attorneys fees and
      costs, and injunctive relief. The Company has filed its Answer and Counterclaim.
      The Company has denied any infringement or liability and challenges the validity
      and enforceability of epicRealm’s patents. Management believes that the Company
      has meritorious defenses and it intends to vigorously defend all
      allegations.











16
 Table
          of Contents


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





*(Tables
      shown in thousands of dollars, except share and per share
      amounts.)*





The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with our condensed consolidated
      financial statements, the notes thereto, and other information appearing
      elsewhere in this Form 10-Q.





***Overview***





We
      design, market, and administer compensation and benefit programs for companies
      supplementing and securing employee benefits and provide executive compensation
      and related consulting services to U.S. corporations, banks, and healthcare
      organizations. We generally compete with regional firms while we market our
      products and services nationwide. A majority of our revenues result from
      commissions paid by insurance companies that underwrite the insurance policies
      used to finance our clients’ benefit programs. Most of our clients’ benefit
      programs are financed by business-owned life insurance and other financial
      products. We pay commissions to employee and independent producers based upon
      a
      percentage of our commission revenue. We work closely with clients to design
      customized products that meet the specific organizational needs of the client
      and with insurance companies to develop unique policy features and competitive
      pricing.





A
      significant portion of our growth in the last ten years has been acquisition
      related. Business-owned life insurance programs have tax advantages that are
      attractive to our clients. Portions of our product offerings are interest rate
      sensitive. Changes in tax and legislative laws can have an affect on our
      business. We have been expanding our compensation consulting practices to
      diversify our product offerings. The largest component of our general and
      administrative expense is salary and other benefit related costs.





***Critical
      Accounting Policies***





The
      preparation of financial statements in conformity with U.S. generally accepted
      accounting principles requires us to make estimates and assumptions that affect
      the reported amounts of assets and liabilities, the disclosure of contingent
      assets and liabilities at the date of the financial statements and the reported
      amounts of revenues and expenses during the reporting period. The Securities
      and
      Exchange Commission (“SEC”) has defined a company’s most critical accounting
      policies as those that are most important to the portrayal of its financial
      condition and the results of operations, and which require us to make difficult
      and subjective judgments, often as a result of the need to make estimates of
      matters that are inherently uncertain. Although we believe that our estimates
      and assumptions are reasonable, they are based upon information available when
      they are made. Actual results may differ significantly from these estimates
      under different assumptions and conditions.





**Revenue
      Sources and Recognition**





Our
      operating segments derive their revenue primarily from:





·
            commissions
                and other compensation paid by insurance companies issuing the policies
                underlying our client’s benefit
                programs;





·
            program
                design and administrative service fees paid by our
                clients;





·
            executive
                compensation and benefit related consulting fees;
                and





·
            fees
                for legislative liaison and related advisory
                services.





Our
      commission revenue is typically recurring, paid annually, and extends for a
      period of twenty years or more after the sale. Commissions are paid by insurance
      companies and vary by policy and by program and represent a percentage of the
      premium or the cash surrender value of the insurance policies underlying the
      program.


17
 Table
          of Contents


*First
      Year Commission Revenue and Consulting Fees* .
      First
      year commissions and consulting fees are derived from three principal sources;
      (a) the commission we earn when the client first purchases the policies, which
      revenue is recognized at the time the application is substantially completed,
      the client is contractually committed to purchase the insurance policies and
      the
      premiums are paid (which is the effective date of the insurance policy), by
      the
      client, to the insurance company or, in certain instances, when cash is
      received; (b) fees for the services related to the enrollment and initial
      administration of the benefit programs and underlying policies; and (c)
      consulting fees.





Our
      first
      year commission revenue is frequently subject to chargeback, which means that
      insurance companies retain the right to recover commissions in the event
      policies prematurely terminate. The chargeback schedules differ by product
      and
      usually apply to first year commission only.





A
      typical
      chargeback schedule, based on a percent of first year commission, is as
      follows:





Year
                1
            
            100%Year
                2 and 3
            
            50%Year
                4
            
            25%Year
                5 and beyond
            
            0%





Given
      the
      homogenous nature of such cases and historical information about chargebacks,
      we
      believe we are able to accurately estimate the revenue earned. We currently
      maintain a chargeback allowance, which is monitored on a quarterly basis for
      adequacy. The chargeback allowance is calculated based on the average percentage
      rate of the last two years of chargebacks multiplied by first year revenue
      for
      the trailing twelve months.





Consulting
      fee revenue consists of fees for services we perform in advising our clients
      on
      their executive compensation programs and related consulting services,
      retirement, benefit, investment advisory services, people strategy, compensation
      surveys, and fees from legislative and regulatory policy matters. These fees
      are
      generally based on a rate per hour arrangement or a fixed monthly fee and are
      earned when the service is rendered.





*Renewal
      Commission Revenue and Related Fees* .
      Renewal
      revenue is recognized on the date that the renewal premium is due or paid by
      the
      client to the insurance company depending on whether a policy is considered
      fixed or variable. Fixed renewal policies have predictable set premium amounts.
      Revenue on these policies is recognized on the premium due date. Variable
      renewal policy premiums can be based upon such items as value of underlying
      investments in the policy, cash surrender value of the policy, or mutual fund
      values. In some cases, we are able to obtain information directly from the
      carriers allowing us to reasonably and reliably estimate the expected renewal
      premiums. Revenue is recognized based upon these estimates at a policy’s renewal
      date. For those policies where we are unable to obtain information to reasonably
      estimate the expected renewal premiums, revenue is not recognized until the
      confirmation has been received from the insurance carrier that the client’s
      premium payment has been received. We are notified in advance if a client plans
      to surrender, so adjustments in subsequent periods due to cancellations are
      infrequent and minor. Revenue associated with policies to be surrendered is
      not
      recognized.





Administrative
      service fee revenue consists of fees we charge our clients for the
      administration of their benefit programs and are earned when services are
      rendered. These revenues are mainly included in our renewal revenue line on
      our
      condensed consolidated statements of income.





*Supplemental
      Compensation Agreements.* A
      portion
      of our revenue is derived from certain supplemental compensation arrangements
      with insurance carriers. These arrangements generate additional revenue with
      respect to primarily existing and, to a lesser extent, new blocks of business.
      Payments under such arrangements are typically based on the cash value (or
      fair
      value) of our existing in-force business with these carriers at specified dates
      of measurement and, to a much lesser extent, based on the value of new business
      generated. We realized approximately $2.1 million and $4.9 million in revenue
      under such arrangements for the three and six months ended June 30, 2006,
      respectively. We realized approximately $2.5 million and $5.7 million in revenue
      under such arrangements for the three and six months ended June 30, 2005,
      respectively.


18
 Table
          of Contents


We
      record
      revenue on a gross basis when we:





·  act
      as
      the principal in the transaction by helping clients select the right product
      or
      service;





·  take
      responsibility for the acceptability of the products and services;





·  provide
      services through employees and exclusive independent producers;





·  have
      latitude in establishing the price the customer will pay;





·  have
      discretion in carrier selection with multiple carriers;





·  have
      chargeback and credit risk; and/or





·  are
      viewed by the client as the administrator of the program once the product is
      sold.





We
      record
      revenue on a net basis when we provide a lead on a case (in the capacity of
      a
      finder) and another company has control of the case and bears the credit risk
      (i.e., working directly with a client to determine the product and design of
      the
      plan).





**Intangible
      Assets**





Our
      intangible assets include the excess of the costs of acquired businesses over
      the fair values of the tangible net assets associated with an acquisition.
      Our
      intangible assets consist of the net present value of future cash flows from
      policies inforce at the acquisition date, non-compete agreements with the former
      owners, other identifiable intangibles, and goodwill. Non-compete agreements
      are
      amortized over the period of the agreements and other identifiable intangibles
      are amortized over their useful lives.





The
      net
      present value of inforce revenue is typically amortized between 20 and 30 years
      (the expected average policy duration). The determination of the amortization
      schedule involves making certain assumptions related to persistency, expenses,
      and discount rates that are used in the calculation of the carrying value of
      inforce revenue. If any of these assumptions change or actual experience differs
      materially from the assumptions used, it could affect the carrying value of
      the
      inforce revenue.





We
      are
      required to assess potential impairments of long-lived assets in accordance
      with
      Statement of Financial Accounting Standards (“SFAS”) No. 144, *Accounting
      for the Impairment of Long-Lived Assets* ,
      if
      events or changes in circumstances indicate that the carrying amount of a
      long-lived asset may not be recoverable. In assessing the recoverability of
      goodwill in accordance with SFAS No. 142, *Goodwill
      and Other Intangible Assets,* and
      the
      net present value of future cash flows from policies inforce, we must make
      assumptions regarding estimated future cash flows, mortality, lapse, and other
      factors to determine the fair value of the respective assets. If these estimates
      and related assumptions change in the future, we may be required to record
      impairment charges.





**Income
      Taxes**





Significant
      judgement is required in determining the provision for income taxes and related
      accruals, deferred tax assets and liabilities, and any valuation allowance
      recorded against the deferred tax assets. In the ordinary course of business,
      there are transactions and calculations where the ultimate tax outcome is
      uncertain. Additionally, our tax returns are subject to audit by federal and
      various state authorities. Although we believe our estimates are reasonable,
      no
      assurance can be given that the final tax outcome will not be materially
      different from that which is reflected in our historical income tax provisions
      and accruals. In assessing the realizability of deferred tax assets, we consider
      the likelihood that some portion or all of the deferred tax assets may not
      be
      realized. The ultimate realization of deferred tax assets is dependent upon
      the
      generation of future taxable income during the periods in which the temporary
      differences become deductible. We consider the scheduled reversal of deferred
      tax liabilities, projected future taxable income, and tax planning strategies
      in
      making this assessment.





**Restructuring
      Costs**





We
      make
      provisions for restructuring costs in accordance with SFAS No.146, *Accounting
      for Costs Associated with Exit or Disposal Activities* .
      To
      determine the amounts expensed in any period, we estimate the amounts we will
      receive in the future for subleasing office space that is no longer required
      for
      our existing operations. Should these estimates not reflect actual results
      in
      future periods, we adjust the provision through the income
      statement.


19
 Table
          of Contents


***Results
      of Operations***





**Three
                Months Ended June 30,**
            
            **Six
                Months Ended June 30,****2006**
            
            **2005**
            
            **%
                Change**
            
            **2006**
            
            **2005**
            
            **%
                Change****Total
                Revenue**
            
            $
            66,375
            
            $
            68,446
            
            
            *(3.0*
            *)%*
            $
            135,851
            
            $
            135,394
            
            
            *0.3*
            *%***Operating
                Expense**Commissions
                and fees
            
            
            14,105
            
            
            14,240
            
            
            *(1.0*
            *)%*
            
            28,626
            
            
            28,042
            
            
            *2.1*
            *%**%
                of revenue*
            
            
            *21.3*
            *%*
            
            *20.8*
            *%*
            
            
            
            
            *21.1*
            *%*
            
            *20.7*
            *%*Other
                operating expenses
            
            
            46,663
            
            
            46,715
            
            
            *(0.1*
            *)%*
            
            95,251
            
            
            92,648
            
            
            *2.8*
            *%**%
                of revenue*
            
            
            *70.3*
            *%*
            
            *68.3*
            *%*
            
            
            
            
            *70.1*
            *%*
            
            *68.4*
            *%***Operating
                Income**
            
            $
            5,607
            
            $
            7,491
            
            
            *(25.2*
            *)%*
            $
            11,984
            
            $
            14,704
            
            
            *(18.5*
            *)%*





*Quarter
      ended June 30, 2006 compared to quarter ended June 30, 2005.*





*Revenue.* Total
      revenue for the three months ended June 30, 2006, was $66.4 million, compared
      to
      revenue of $68.4 million in second quarter 2005. First year commission and
      consulting fees for the three months ended June 30, 2006, were $32.8 million
      compared to $35.9 million for the three months ended June 30, 2005. First year
      commission revenue has declined over the past year due to the interest rate
      environment and Section 409A of the Internal Revenue Code compliance efforts.
      However, the first year commission revenue decline is partially offset by the
      revenue ($2.5 million) generated from the fourth quarter 2005 acquisitions
      of
      Stratford and MedEx. In addition, Healthcare revenue increased due to continuing
      growth in fee-based businesses. Renewal revenue for the three months ended
      June
      30, 2006, was $31.7 compared to $30.8 million for the three months ended June
      30, 2005. The increase in renewal revenue was primarily the result of premium
      payment timing from certain clients. Total revenue for the three months ended
      June 30, 2006 and 2005, included approximately $2.1 million and $2.5 million,
      respectively, related to supplemental compensation arrangements. We expect
      revenue based on our inforce block of business to be less in 2006 than 2005.
      In
      February 2006, we amended a supplemental compensation arrangement with one
      of
      our insurance carriers. In exchange for a longer term arrangement, the
      percentage used to calculate payments based on our inforce block of business
      was
      reduced. However, there are additional opportunities to earn revenue should
      we
      meet certain production targets for new business.





*Commissions
      and fees expense.* Commissions and fees expense for the three months ended June 30, 2006, was
      $14.1
      million, or 21.3% of total revenue, compared to $14.2 million, or 20.8% of
      total
      revenue, in the second quarter 2005. The slight increase in percentage is a
      result of the fourth quarter 2005 acquisition of MedEx whose commission
      percentages are higher than our core business. In addition, there is no
      commission expense associated with the supplemental compensation arrangements
      and consulting fees are typically not subject to commissions.





*General
      and administrative expenses* .
      General
      and administrative expenses were $41.0 million for the three months ended June
      30, 2006, compared to $41.2 million for the three months ended June 30, 2005.
      The general and administrative expenses for the three months ended June 30,
      2006
      include $430 thousand in Clark Benson expenses, $273 thousand of SFAS 123(R)
      equity based compensation expenses, $1.5 million of expenses related to our
      fourth quarter 2005 acquisitions and an $820 thousand expense reduction to
      correct the liability relating to one of our employee benefit plans. In
      addition, legal fees have increased approximately $380 thousand for the three
      months ended June 30, 2006 compared to June 30, 2005 based upon the number
      of
      pending legal matters. General and administrative expenses for the three months
      ended June 30, 2006 included approximately $700 thousand of severance expense
      associated with a reduction in force of 16 associates.





*Amortization
      expense.* Amortization
      expense for the three months ended June 30, 2006 and 2005, was $3.8
      million.





*Other
      income.* In
      the
      second quarter of 2005, we received $1.6 million of non-taxable life insurance
      proceeds following the death of an executive in our Healthcare
      Practice.





*Interest
      expense* .
      Interest expense for the three months ended June 30, 2006 was $5.5 million
      compared to $5.4 million for the three months ended June 30, 2005 based on
      lower
      borrowing levels but higher interest rates in 2006.





*Income
      taxes.* Income
      taxes for the three months ended June 30, 2006, were $100 thousand, or 40.8%
      of
      income before taxes, compared to $897 thousand, or 23.8% of income before taxes
      for the three months ended June 30, 2005. The lower effective tax rate for
      the
      three months ended June 30, 2005 is due to $1.6 million of non-taxable life
      insurance proceeds in the quarter.





*Net
      income.* Net
      income for the quarter ended June 30, 2006, was $145 thousand, or $0.01 per
      diluted share, as compared to net income of $2.9 million, or $0.16 per diluted
      share, in the comparable quarter of 2005.


20
 Table
          of Contents


*Six
      months ended June 30, 2006 compared to six months ended June 30,
      2005.*





*Revenue.* Total
      revenue for the six months ended June 30, 2006, was $135.9 million, compared
      to
      revenue of $135.4 million for the six months ended June 30, 2005. First year
      commission and consulting fees for the six months ended June 30, 2006, were
      $64.4 million compared to $65.2 million for the six months ended June 30, 2005.
      First year commission revenue has declined over the past year due to the
      interest rate environment and Section 409A of the Internal Revenue Code
      compliance efforts. However, the first year commission revenue decline is
      partially offset by the revenue ($4.9 million) generated from the fourth quarter
      2005 acquisitions of Stratford and MedEx. In addition, Healthcare revenue
      increased due to continuing growth in fee-based businesses. Renewal revenue
      for
      the six months ended June 30, 2006, was $67.5 compared to $66.9 million for
      the
      six months ended June 30, 2005. The increase in renewal revenue was primarily
      the result of premium payment timing from certain clients. Total revenue for
      the
      six months ended June 30, 2006 and 2005, included approximately $4.9 million
      and
      $5.7 million, respectively, related to supplemental compensation arrangements.
      We expect revenue based on our inforce block of business to be less in 2006
      than
      2005. In February 2006, we amended a supplemental compensation arrangement
      with
      one of our insurance carriers. In exchange for a longer term arrangement, the
      percentage used to calculate payments based on our inforce block of business
      was
      reduced. However, there are additional opportunities to earn revenue should
      we
      meet certain production targets for new business.





*Commissions
      and fees expense.* Commissions and fees expense for the six months ended June 30, 2006, was $28.6
      million, or 21.1% of total revenue, compared to $28.0 million, or 20.7% of
      total
      revenue, for the six months ended June 30, 2005. The slight increase in
      percentage is a result of the fourth quarter 2005 acquisition of MedEx whose
      commission percentages are higher than our core business. In addition, there
      is
      no commission expense associated with the supplemental compensation arrangements
      and consulting fees are typically not subject to commissions.





*General
      and administrative expenses* .
      General
      and administrative expenses were $83.8 million for the six months ended June
      30,
      2006, compared to $81.7 million for the six months ended June 30, 2005. The
      general and administrative expenses for the six months ended June 30, 2006
      include $1.0 million in Clark Benson expenses, $411 thousand of SFAS 123(R)
      equity based compensation expenses, $2.8 million of expenses related to our
      fourth quarter 2005 acquisitions  and
      an
      $860 thousand expense reduction to correct the liability relating to one of
      our
      employee benefit plans. In addition, legal fees have increased approximately
      $900 thousand for the six months ended June 30, 2006 compared to the six months
      ended June 30, 2005 based upon the number of pending legal matters. General
      and
      administrative expenses for the six months ended June 30, 2006 included
      approximately $900 thousand of severance expense associated with reductions
      in
      force of 20 associates. The expected annual savings from the reductions in
      force
      is approximately $2.0 million.





*Amortization
      expense.* Amortization
      expense for the six months ended June 30, 2006 and 2005, was $7.5 million and
      $7.7 million, respectively. The decrease is based on the timing of scheduled
      amortization of our acquired inforce revenue.





*Other
      income.* In
      the
      second quarter of 2005, we received $1.6 million of non-taxable life insurance
      proceeds following the death of an executive in our Healthcare
      Practice.





*Interest
      expense* .
      Interest expense for the six months ended June 30, 2006 and 2005 was $11.0
      million.





*Income
      taxes.* Income
      taxes for the six months ended June 30, 2006, were $534 thousand, or 40.7%
      of
      income before taxes, compared to $1.6 million, or 29.0% of income before taxes,
      for the six months ended June 30, 2005. The lower effective tax rate for the
      six
      months ended June 30, 2005 is due to $1.6 million of non-taxable life insurance
      proceeds in the quarter.





*Net
      income.* Net
      income for the six months ended June 30, 2006, was $778 thousand, or $0.04
      per
      diluted share, as compared to net income of $4.0 million, or $0.22 per diluted
      share, in the comparable period of 2005.


21
 Table
          of Contents


The
      tables that follow present the operating results of our four reportable segments
      for the three and six months ended June 30, 2006 and 2005.





***Corporate
                Solutions*****Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Total
                Revenue**
            
            $
            43,783
            
            $
            45,550
            
            $
            88,476
            
            $
            90,051**Operating
                Expenses**Commissions
                and fees
            
            
            12,209
            
            
            13,009
            
            
            24,920
            
            
            25,581Other
                operating expenses
            
            
            25,001
            
            
            25,046
            
            
            50,761
            
            
            49,867**Operating
                (Loss) Income**
            
            $
            6,573
            
            $
            7,495
            
            $
            12,795
            
            $
            14,603*%
                of revenue*
            
            
            *15.0*
            *%*
            
            *16.5*
            *%*
            
            *14.5*
            *%*
            
            *16.2*
            *%*








As
      of
      January 1, 2006, the Executive Benefits Practice, the Banking Practice and
      the
      Insurance Company Practice (previously included in Corporate/CSI) were combined
      into the Corporate Solutions Practice. As a result, all years presented have
      been reclassified to reflect this combination.





Total
      revenue for the three months ended June 30, 2006, was $43.8 million compared
      to
      $45.6 million for the three months ended June 30, 2005. First year commission
      and consulting fees for the three months ended June 30, 2006, was $14.5 million
      compared to $17.4 million for the three months ended March 31, 2005. The decline
      in first year commission and consulting fees resulted primarily from lower
      insurance based sales. First year commission and consulting fees for the three
      months ended June 30, 2006, included $1.4 million related to the fourth quarter
      2005 acquisition of Stratford. Renewal revenue for the three months ended June
      30, 2006, was $29.2 million compared to $28.1 million for the three months
      ended
      June 30, 2005. The increase in renewal revenue was primarily the result of
      premium payment timing from certain clients. Total revenue for the three months
      ended June 30, 2006 and 2005 included approximately $1.4 million and $1.7
      million, respectively, related to supplemental compensation arrangements. We
      expect revenue based on our inforce block of business to be less in 2006 than
      2005. In February 2006, we amended a supplemental compensation arrangement
      with
      one of our insurance carriers. In exchange for a longer term arrangement, the
      percentage used to calculate future payments based on our inforce block of
      business was reduced. However, there are additional opportunities to earn
      revenue should we meet certain production targets for new business.





Commission
      expense as a percentage of total revenue was 27.9% for the three months ended
      June 30, 2006, and 28.6% for the three months ended June 30, 2005 reflecting
      an
      increase in fee based business not subject to commission. General and
      administrative expense for both the three months ended June 30, 2006 and June
      30, 2005 was $21.7 million. The general and administrative expenses for the
      three months ended June 30, 2006 included approximately $700 thousand of
      severance expense associated with a reduction in force of 16 associates, costs
      of temporary associates to assist with Section 409A of the Internal Revenue
      Code
      compliance and $1.3 million of expenses associated with a fourth quarter 2005
      acquisition. Amortization expense for the three months ended June 30, 2006
      was
      $3.3 million compared to $3.4 million for the three months ended June 30, 2005.
      The decrease is based on the timing of scheduled amortization of our acquired
      inforce revenue.





Trends
      in
      the six month results ended June 30, 2006 as compared to the comparable period
      in 2005 were the same as those experienced for the quarter. General and
      administrative expenses for the six months ended June 30, 2006 included
      approximately $900 thousand of severance expense associated with reductions
      in
      force of 20 associates. The expected annual savings from the reductions in
      force
      is approximately $2.0 million.





22
 Table
          of Contents





***Healthcare
                Group*****Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Total
                Revenue**
            
            $
            10,173
            
            $
            9,725
            
            $
            21,625
            
            $
            19,906**Operating
                Expenses**Commissions
                and fees
            
            
            1,310
            
            
            1,231
            
            
            2,591
            
            
            2,461Other
                operating expenses
            
            
            7,701
            
            
            7,078
            
            
            15,146
            
            
            13,843**Operating
                Income**
            
            $
            1,162
            
            $
            1,416
            
            $
            3,888
            
            $
            3,602*%
                of revenue*
            
            
            *11.4*
            *%*
            
            *14.6*
            *%*
            
            *18.0*
            *%*
            
            *18.1*
            *%*





Healthcare
      Group revenue for the three months ended June 30, 2006 was $10.2 million,
      compared to $9.7 million for the three months ended June 30, 2005. The increase
      in revenue is primarily a result of continued growth of consulting fee revenue
      from several services. Commission expense for the three months ended June 30,
      2006 was $1.3 million compared to $1.2 million for the three months ended June
      30, 2005. General and administrative expense for the three months ended March
      31, 2006 was $7.5 million compared to $6.8 million for the three months ended
      June 30, 2005. The general and administrative expense increase is primarily
      due
      to incremental costs associated with higher headcount of fee based revenue
      producing associates.





Trends
      in
      the six month results ended June 30, 2006 as compared to the comparable period
      in 2005 were the same as those experienced for the quarter.





***Pearl
                Meyer & Partners*****Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Total
                Revenue**
            
            $
            7,352
            
            $
            8,274
            
            $
            15,374
            
            $
            16,528**Operating
                Expenses**
            
            
            6,591
            
            
            7,211
            
            
            13,409
            
            
            14,528**Operating
                Income**
            
            $
            761
            
            $
            1,063
            
            $
            1,965
            
            $
            2,000*%
                of revenue*
            
            
            *10.4*
            *%*
            
            *12.8*
            *%*
            
            *12.8*
            *%*
            
            *12.1*
            *%*





Pearl
      Meyer & Partners revenue for the three months ended June 30, 2006 was $7.4
      million compared to $8.3 million for the three months ended June 30, 2005.
      Due
      to involuntary and voluntary terminations which occurred in the second half
      of
      2005, there are less revenue producing consultants in 2006 compared to 2005.
      Operating expenses were $6.6 million for the three months ended June 30, 2006
      compared to $7.2 million for the three months ended June 30, 2005. The decrease
      in operating expenses is also a result of lower headcount (87 in 2006 and 100
      in
      2005.)





Trends
      in
      the six month results ended June 30, 2006 as compared to the comparable period
      in 2005 were the same as those experienced for the quarter.


23
 Table
          of Contents





***Federal
                Policy Group*****Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Total
                Revenue**
            
            $
            2,812
            
            $
            2,932
            
            $
            5,761
            
            $
            5,832**Operating
                Expenses**
            
            
            2,401
            
            
            2,277
            
            
            4,790
            
            
            4,896**Operating
                Income**
            
            $
            411
            
            $
            655
            
            $
            971
            
            $
            936***%
                of revenue*
            
            
            *14.6*
            *%*
            
            *22.3*
            *%*
            
            *16.9*
            *%*
            
            *16.0*
            *%*





Federal
      Policy Group revenue for the three months ended June 30, 2006 and 2005 was
      $2.8
      million and $2.9 million, respectively. Operating expenses for the three months
      ended June 30, 2006 were $2.4 million compared to $2.3 million for the three
      months ended June 30, 2005.





Trends
      in
      the six month results ended June 30, 2006 as compared to the comparable period
      in 2005 were generally the same as those experienced for the quarter. Operating
      expenses for the six months ended June 30, 2006 and 2005 were $4.8 million
      and
      $4.9 million, respectively. Operating expense for the six months ended June
      30,
      2005 included a $250 thousand payment as required by an employment agreement.
      No
      such payment was required in 2006.








**Liquidity
      and Capital Resources**





*Selected
      Measures of Liquidity and Capital Resources*





**June
                30,**
            
            **December
                31,****2006**
            
            **2005**Cash
                and cash equivalents
            
            $
            6,205
            
            $
            5,077Working
                capital (1)
            
            $
            (12,636
            )
            $
            (9,837
            )Current
                ratio - to one
            
            
            0.80
            
            
            0.85Shareholders’
                equity per common share (2)
            
            $
            15.39
            
            $
            15.42Debt
                to total capitalization (3)
            
            
            52.3
            %
            
            53.1
            %





(1)
      Includes restricted cash and current portion of debt associated with
      asset-backed non-recourse notes


(2)
      Total
      stockholders’ equity divided by actual shares outstanding


(3)
      Current debt plus long term debt divided by current debt plus long term debt
      plus stockholders’ equity





As
      a
      company with historically strong operating cash flow, we believe we have little
      need to maintain substantial cash balances. To the extent we have net cash
      from
      operating activities, we use it to fund capital expenditures and service
      existing debt. We expect large cash outlays such as future acquisitions will
      be
      financed primarily through externally available funds. However, we can offer
      no
      assurance such funds will be available and, if so, on terms acceptable to
      us.





Below
      is
      a table summarizing our cash flow:





**Six
                Months Ended June 30,****2006**
            
            **2005**Cash
                flows (used in) provided by:Operating
                activities
            
            $
            15,232
            
            $
            17,764Investing
                activities
            
            
            (4,780
            )
            
            (11,916
            )Financing
                activities
            
            
            (9,324
            )
            
            (11,926
            )





24
 Table
          of Contents


*Cash
      Flows from Operating Activities*





Our
      cash
      flows from operating activities were as follows:





**Six
                Months Ended June 30,****2006**
            
            **2005**Net
                income plus non-cash expenses
            
            $
            10,812
            
            $
            18,439Changes
                in operating assets and liabilities
            
            
            4,420
            
            
            (675
            )Cash
                flows from operating activities
            
            $
            15,232
            
            $
            17,764





Non-cash
      expenses include primarily depreciation of equipment and leasehold improvements,
      amortization of intangibles, SFAS 123(R) equity based compensation expense,
      and
      deferred tax expense. The 2006 increase in cash relating to changes in operating
      assets and liabilities relates primarily to the collection of accounts
      receivable.




*Cash
      Used in Investing Activities*




For
      the
      six months ended June 30, 2006, approximately $3.1 million of cash was used
      primarily for contingent consideration payments to prior owners of businesses
      we
      acquired and approximately $1.7 million of our cash was used for the purchase
      of
      fixed assets.





A
      substantial portion of the purchase price used to fund acquisitions has
      historically been paid in cash. This is primarily due to our desire to avoid
      diluting our existing stockholders. We expect acquisitions to continue to be
      financed primarily from available credit lines and possible additional equity.
      However, we can offer no assurances such will be the case.





*Cash
      Flows Used in Financing Activities*





For
      the
      six months ended June 30, 2006, approximately $9.3 million of cash was used
      in
      financing activities. We used approximately $7.7 million for the net repayment
      of borrowings and approximately $2.1 million for the payment of dividends.
      As of
      June 30, 2006, we had restricted cash of approximately $7.9 million, a decrease
      of $100 thousand from December 31, 2005, which will be used to pay down the
      asset-backed notes issued to finance the acquisition of LongMiller. This cash
      is
      not available for general corporate purposes, but is solely to service
      securitization indebtedness incurred to finance the acquisition of
      LongMiller.





On
      August
      31, 2005, we added a participant bank to our senior credit facility ($10
      million) and one of the existing participants increased their commitment ($7
      million). As a result, the current amount available under this facility is
      $89
      million. As of June 30, 2006, there was $4.1 million outstanding on the
      facility. Our assets are pledged to the bank group as part of the credit
      facility except for cash flows from commissions to be received upon the renewals
      of specified inforce policies acquired in connection with the acquisition of
      LongMiller. In September 2004, we amended our credit agreement to allow for
      potential stock repurchases and dividend payments. The remaining provisions
      of
      the agreement remained substantively the same. Our credit facility expires
      on
      December 31, 2006. We expect the credit facility to be renewed on substantially
      similar terms.





The
      restrictive covenants under the credit agreement provide for the maintenance
      of
      a minimum ratio of fixed charges, a maximum allowable leverage ratio, a minimum
      amount of net worth (stockholders’ equity), and a maximum ratio of debt to
      capitalization. We were in compliance with all restrictive covenants as of
      June
      30, 2006.





We
      believe that our cash flow from operating activities will continue to provide
      sufficient funds to service our debt obligations. However, as our business
      grows, our working capital and capital expenditure requirements will also
      continue to increase. There can be no assurance that the net cash flow from
      operations will be sufficient to meet our anticipated cash flow requirements
      or
      that we will not require additional debt or equity financing in the future.
      We
      may issue stock to finance future acquisitions.





25
 Table
          of Contents


ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK





At
      June
      30, 2006, we had total outstanding indebtedness of $297.6 million. Our
      outstanding debt consists of the following:





**Type
                of Debt**
            
            **Outstanding
                Amount**
              **as
                of****June
                30, 2006**
            
            **Weighted
                Average Interest Rate**
              **as
                of June 30, 2006**Non-recourse
                bonds
            
            $
            245.8
                million
            
            
            Fixed
                - 6.6
            %Note
                to prior owner
            
            
            2.7
                million
            
            
            Fixed
                - 10.0
            %Trust
                preferred
            
            
            45.0
                million
            
            
            Variable
                - 9.1
            %Credit
                facility
            
            
            4.1
                million
            
            
            Variable
                - 7.3
            %





On
      November 15, 2005, we entered into an interest rate swap with an initial
      notional amount of $4.8 million and an effective date of January 1, 2006. The
      notional amount of this interest rate swap increases $1.4 million each calendar
      quarter until December 31, 2007, and then remains at $16 million. The quarterly
      increase in the notional amount of this interest rate swap exactly offsets
      the
      amortizing notional amount of the January 7, 2003 interest rate swap. The
      purpose of this swap is to hedge our remaining trust preferred LIBOR-based
      variable rate debt. The terms of the interest rate swaps as of June 30, 2006
      are
      as follows:





**Effective**
              **Date**
            
            **Maturity
                Date**
            
            **Notional
                Amount at**
              **June
                30, 2006**
            
            **Fixed
                Rate to be Paid**
            
            **Variable
                Rate**
              **to
                be Received**
            
            **Fair
                Value as of**
              **June
                30, 2006**January
                1, 2006
            
            
            December
                31, 2015
            
            $
            7.6
                million
            
            
            5.26
            %
            
            LIBOR
            
            $
            385June
                3, 2005
            
            
            December
                31, 2009
            
            $
            12.0
                million
            
            
            4.05
            %
            
            LIBOR
            
            
            588February
                25, 2005
            
            
            December
                31, 2009
            
            $
            10.0
                million
            
            
            4.31
            %
            
            LIBOR
            
            
            400May
                18, 2004
            
            
            March
                31, 2009
            
            $
            7.0
                million
            
            
            4.44
            %
            
            LIBOR
            
            
            191January
                7, 2003
            
            
            December
                31, 2007
            
            $
            8.4
                million
            
            
            2.85
            %
            
            LIBOR
            
            
            193Total
            
            
            
            
            $
            45.0
                million
            
            
            
            
            
            
            
            $
            1,757





We
      have
      exposure to changing interest rates and will engage in hedging activities,
      from
      time to time, to mitigate this risk. The interest rate swaps we have entered
      into are used to hedge our interest rate exposure on the LIBOR based variable
      rate debt outstanding at June 30, 2006. Interest on the remaining $4.1 million
      of unhedged variable debt at June 30, 2006, bears interest at 30-day LIBOR
      plus
      a spread, prime and the bank’s overnight rate plus a spread. At our current
      borrowing level, a 1% change in the interest rate will have an effect of
      approximately $41 thousand.





**ITEM
      4.****CONTROLS
      AND PROCEDURES**





Under
      the
      supervision and with the participation of our management, including our chief
      executive officer and chief financial officer, we conducted an evaluation of
      our
      disclosure controls and procedures, as such term is defined under Rule 13a-15(e)
      promulgated under the Securities Exchange Act of 1934, as amended (the Exchange
      Act). Based on this evaluation, our chief executive officer and our chief
      financial officer concluded that our disclosure controls and procedures were
      effective as of the end of the period covered by this quarterly
      report.








**PART
      II OTHER INFORMATION**





**ITEM
      1.****LEGAL
      PROCEEDINGS**





From
      time
      to time, we are involved in various claims and lawsuits incidental to our
      business ,
      including claims and lawsuits alleging breaches of contractual obligations
      under
      agreements with our employee consultants and independent producers. The
      following is a summary of the current material legal proceedings pending against
      us.





**epicRealm
      Licensing**





On
      August
      8, 2005, an action was commenced by epicRealm in the U.S. District Court,
      Marshall, Texas, in which epicRealm claims that Clark Consulting and several
      other unrelated entities have infringed two epicRealm patents relating to online
      generation of dynamic web pages. The Plaintiff seeks unspecified actual and
      enhanced (based on asserted willful infringement) damages, attorneys fees and
      costs, and injunctive relief. We have filed our Answer and Counterclaim. We
      have
      denied any infringement or liability and challenge the validity and
      enforceability of epicRealm’s patents. Management believes that we have
      meritorious defenses and we intend to vigorously defend all
      allegations.


26
 Table
          of Contents


**ITEM
      1A. RISK FACTORS**





No
      changes from the risk factors disclosed in our Annual Report on Form 10-K for
      the year ended December 31, 2005.





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





On
      May 1,
      2006, we issued 76,336 shares of our common stock to the owners of ValMark
      Insurance Agency LLC. in connection with our purchase of a minority interest
      in
      ValMark Insurance Agency LLC. The issue was exempt from registration under
      Section 4(2) of the Securities Act of 1933. The total value of the shares issued
      was $1 million on May 1, 2006.





**ITEM
      3.****DEFAULTS
      UPON SENIOR SECURITIES**





None





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





(a)  The
      Company’s Annual Meeting of Stockholders was held on April 25,
      2006.




(b)  At
      the
      Annual Meeting, three uncontested nominees to the Board of Directors of the
      Company were elected Class II directors for three-year terms expiring at the
      2009 Annual Meeting. The votes for the director nominees were as
      follows:




Director
                Nominee
            
            For
            
            WithheldL.
                William Seidman
            
            
            16,049,170
            
            
            161,325Robert
                E. Long Jr.
            
            
            15,862,746
            
            
            347,749Thomas
                M. Pyra
            
            
            13,621,878
            
            
            2,588,617





In
      addition, Tom Wamberg, Randolph A. Pohlman, James M. Benson, George D. Dalton,
      Kenneth A. Guenther, and Richard C. Lappin continue to serve as directors of
      the
      Company after the Annual Meeting.





(c)  The
      results of stockholder voting on ratification of the appointment of Ernst and
      Young LLP as independent registered public accounting firm for the year ending
      December 31, 2006, were as follows:





For
            Against
            Abstain15,968,881
            239,467
            2,147





**ITEM
      5.****OTHER
      INFORMATION**





None





**ITEM
      6.****EXHIBITS**





See
      accompanying Exhibit Index included after the signature page of this report
      for
      a list of the exhibits filed, furnished, or incorporated by reference in this
      report.


27
 Table
          of Contents





**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,
      INC.








Date:
            August
                1, 2006
            
            /s/
                Tom WambergTom
                WambergChairman
                of the Board and Chief Executive OfficerDate:
            August
                1, 2006
            
            /s/
                Jeffrey W. LemajeurJeffrey
                W. LemajeurChief
                Financial Officer


28
 Table
          of Contents


**EXHIBIT
      INDEX**





3.1
            Certificate
                of Incorporation of Clark/Bardes, Inc. (Incorporated herein by reference
                to Exhibit 3.1 of our Registration Statement on Form S-1, File No.
                333-56799, filed with the SEC on July 15, 1998).3.2
            Certificate
                of Amendment of Certificate of Incorporation of Clark/Bardes, Inc.
                (Incorporated herein by reference to Exhibit 3.3 to Amendment No.1
                to our
                Registration Statement on Form S-1, File No. 333-56799, filed with
                the SEC
                on July 27, 1998).3.3
            Certificate
                of Amendment of Certificate of Incorporation of Clark/Bardes, Inc.
                (Incorporated herein by reference to Exhibit 5 of our Registration
                Statement on Form 8-A, filed with the SEC on February 28,
                2002).3.4
            Certification
                of Amendment of Certification of Incorporation (Incorporated herein
                by
                reference to Exhibit 3.6 of our Quarterly Report on Form 10-Q, File
                No.
                001-31256, filed with the SEC on August 14, 2002).3.5
            Certificate
                of Amendment of Certificate of Incorporation (Incorporated herein
                by
                reference to Exhibit 4.5 of our Registration Statement on Form S-8,
                File
                No. 333-106538, filed with the SEC on June 26, 2003).3.6
            Bylaws
                of Clark, Inc. (Incorporated herein by reference to Exhibit 4.6 of
                our
                Registration Statement on Form S-8, File No. 333-106538, filed with
                the
                SEC on June 26, 2003).3.7
            Certificate
                of Designation of Series A Junior Participating Preferred Stock
                (Incorporated herein by reference to Exhibit 3.4 to Amendment No.
                2 to our
                Registration Statement on Form S-1, File No. 333-56799 filed with
                the SEC
                on August 11, 1998).4.1
            Specimen
                Certificate for shares of Common Stock, par value $.01 per share,
                of Clark
                Holdings, Inc. (Incorporated herein by reference to Exhibit 4.1 to
                Amendment No. 1 to our Registration Statement on Form S-1, File No.
                333-56799, filed with the SEC on July 27, 1998).4.2
            Rights
                Agreement, dated as of July 10, 1998, by and between Clark Holdings,
                Inc.
                and The Bank of New York (Incorporated herein by reference to Exhibit
                4.4
                of our Quarterly Report on Form 10-Q, File No. 000-24769, filed with
                the
                SEC on November 16, 1998).10.1
            Employment
                Agreement, entered into on April 12, 2006, between Clark Consulting,
                Inc.
                and Leslie N. Brockhurst (incorporated by reference to Exhibit 10.1
                to our
                Form 8-K, File No. 001-31256, filed with the SEC on April 18,
                2006).10.2
            Amendment
                to Employment Agreement, dated April 17, 2006, between Clark Consulting,
                Inc. and Leslie N. Brockhurst (incorporated by reference to Exhibit
                10.2
                to our Form 8-K, File No. 001-31256, filed with the SEC on April
                18,
                2006).10.3
            Description
                of revised compensation arrangements for non-employee members of
                the
                Clark, Inc. Board of Directors (incorporated by reference to Item
                1.01 of
                our Form 8-K, File No. 001-31256, filed with the SEC on May 1,
                2006).10.4
            Form
                of Non-Qualified Stock Option Agreement - Clark, Inc. Incentive
                Compensation Plan.*31.1
            Certification
                of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley
                Act
                of 2002.*31.2
            Certification
                of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley
                Act
                of 2002.*32.1
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of Sarbanes-Oxley Act of 2002.*







_______________




*filed
      herewith




29