We present hydrodynamic simulations of the evolution of self-gravitating dense gas on scales of 1 kiloparsec down to < parsec in a galactic disk, designed to study dense clump formation from giant molecular clouds (GMCs). These structures are expected to be the precursors to star clusters and this process may be the rate limiting step controling star formation rates in galactic systems as described by the Kennicutt-Schmidt relation. We follow the thermal evolution of the gas down to ~5K using

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... tinction-dependent heating and cooling functions. We do not yet include magnetic fields or localized stellar feedback, so the evolution of the GMCs and clumps is determined solely by self-gravity balanced by thermal and turbulent pressure support and the large scale galactic shear. While cloud structures and densities change significantly during the simulation, GMC virial parameters remain mostly above unity for time scales exceeding the free-fall time of GMCs indicating that energy from galactic shear and large-scale cloud motions continuously cascades down to and within the GMCs. We implement star formation at a slow, inefficient rate of 2% per local free-fall time, but even this yields global star formation rates that are about two orders of magnitude larger than the observed Kennicutt-Schmidt relation due to over-production of dense gas clumps. We expect a combination of magnetic support and localized stellar feedback is required to inhibit dense clump formation to ~1% of the rate that results from the nonmagnetic, zero-feedback limit.