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**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON****, D.C. 20549**

**FORM10-K**

**AnnualReport Pursuant to Section 13 or 15(d)**

** ofthe Securities Exchange Act of 1934**

**Forthe fiscal year ended September 30, 2009**                                          **Commissionfile number 000-18590**

**GOODTIMES RESTAURANTS INC. **

(Exactname of registrant as specified in its charter)

|                                                                 |  |                                          |
|-----------------------------------------------------------------|--|------------------------------------------|
| Nevada                                                          |  | 84-1133368                               |
|                                                                 |  |                                          |
| (State  or other jurisdiction of incorporation or organization) |  | (I.R.S.  Employer Identification Number) |

601 CorporateCircle, Golden, Colorado     80401

(Address ofprincipal executive offices)     (Zip Code)

Issuer'stelephone number:  (303) 384-1400

Securitiesregistered pursuant to Section 12(b) of the Act:

| Title  of each class                                          |  | Name  of each exchange on which registered |
|---------------------------------------------------------------|--|--------------------------------------------|
| Common  Stock $.001 par value, Preferred Stock $.01 par value |  | The  NASDAQ Stock Market, LLC              |

Securitiesregistered pursuant to Section 12(g) of the Act: None

Indicate by check mark if theregistrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act.  Yes__           No  x

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 orSection 15(d) of the Act.  Yes__

 No  x

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15 (d) of the Securities ExchangeAct of 1934 during the preceding 12 months and (2)has been subject to suchfiling requirements for the past 90 days Act.

Yes    x      No__

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T during the preceding 12 months(or for such shorter period that the registrant was required to submit and postsuch files). Yes__                                               No   x

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant'sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K. [x]

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company. See definition of "largeaccelerated filer", "accelerated filer" and "smaller reporting company" inRule 12b-2 of the Exchange Act. (Check one):

| Large accelerated filer__ | Accelerated filer__ | Non-accelerated filer__

(Do not check if a smaller reporting company) | Smaller  Reporting 

Company  x |
|---------------------------|---------------------|------------------------------------------------------------------------|---------------------------------|

Indicate by check markwhether the registration is a shell company (as defined in Rule 12b-2 ofthe Exchange Act). Yes__No  x

Asof December 15, 2009, the aggregate market value of the 1,991,206 shares ofcommon stock held by non-affiliates of the issuer, based on the closing salesprice of the common stock on December 15, 2009 of $1.08 per share as reportedon the Nasdaq Capital Market, was $2,150,502.

Asof December 15, 2009, the issuer had 3,898,559 shares of common stock outstanding.

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**TABLE OFCONTENTS**

| **FORM 10-K -  PART I**                                                                                                                                   | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Item  1       Business                                                                                                      | 1 - 10     |
| Item  1A     Risk Factors                                                                                                             | 10 - 13    |
| Item  1B     Unresolved Staff Comments                                                                                                | 13         |
| Item  2       Properties                                                                                                    | 13 - 14    |
| Item  3       Legal Proceedings                                                                                             | 14         |
| Item 4       Submission  of Matters to a Vote of Security Holders                                                           | 14         |
| **PART II**                                                                                                                                               | ** ** |
| Item 5       Market  for Registrant's Common Equity, Related Stockholder Matters and Issuer  Purchases of Equity Securities | 14         |
| Item 6       Selected  Financial Data                                                                                       | 15         |
| Item 7       Management's  Discussion and Analysis of Financial Condition and Results of Operations                         | 16 - 22    |
| Item 7A     Quantitative  and Qualitative Disclosures About Market Risk                                                               | 22         |
| Item  8       Financial Statements and Supplementary Data                                                                   | F1 - F19   |
| Item 9       Changes  In and Disagreements with Accountants on Accounting and Financial Disclosure                          | 23         |
| Item  9A     Controls and Procedures                                                                                                  | 23         |
| Item  9B     Other Information                                                                                                        | 23         |
| ****
**PART III**                                                                                                                                         | ** ** |
| Item 10     Directors,  Executive Officers and Corporate Governance                                                                   | 23 - 27    |
| Item  11     Executive Compensation                                                                                                   | 27 - 29    |
| Item 12     Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                          | 30- 31     |
| Item 13     Certain  Relationships, Related Transactions, and Director Independence                                                   | 31         |
| Item  14     Principal Accountant Fees and Services                                                                                   | 32         |
| **PART IV**                                                                                                                                               | ** ** |
| Item 15     Exhibits, Financial  Statement Schedules                                                                                  | 33 - 35    |
| Signatures                                                                                                                                                | 36         |

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**PARTI**

**Item 1.           Business.**

**Overview:**Good Times Restaurants Inc., a Nevada corporation (the "Company"),was organized in 1987.  The Company is essentially a holding company for itswholly owned subsidiary, Good Times Drive Thru Inc., which is engaged in thebusiness of developing, owning, operating and franchising hamburger-orienteddrive-through restaurants under the name Good Times Burgers & FrozenCustard.  Most of our restaurants are located in the front-range communities ofColorado but we also have franchised restaurants in Idaho, North Dakota andWyoming.  The terms "Good Times", "we", "us" and"our" where used herein refer to the operations of Good Times DriveThru Inc. and of the Company.

**RecentDevelopments:**  After several years of same storesales growth, including several months of double digit growth in fiscal 2007and early fiscal 2008, we experienced a dramatic change in our sales trends,beginning in early calendar 2008 and continuing through September 2009, as theeconomy slowed and competitive pricing pressures intensified.   Due to thedramatic decline in consumer spending, the unprecedented rise in commoditycosts and the upheaval in the credit markets, we suspended most of ourrestaurant development under both the dual brand format and under the DevelopmentAgreement with Zen Partners LLC described below.  We also had to suspend thedevelopment of company-owned restaurants. 

As discussedbelow in Concept and Business Strategy, we are focusing on regaining our samestore sales momentum, improving our core value proposition for the consumer andevolving the brand to a more highly differentiated position in the marketplace.

On August 14,2009 as reported on form 8-K we announced that our Board of Directors hasformed a Special Committee comprised of directors Richard Stark, Alan Teran andGeoff Bailey to explore and evaluate strategic alternatives aimed at enhancingshareholder value and explore alternatives to reduce the cost burdens of beinga publicly held entity. At that time, the Company hired Mastodon Ventures, Inc.to provide strategic advisory services and explore other strategic alternativesthat will further the long-term business prospects of the Company andprovide incremental value to its shareholders.  The foregoing activities arecontinuing without yet any specific recommended alternatives.

There can be noassurance regarding the timing of or whether the Board will elect to pursue anyof the strategic alternatives it may consider, or that any such alternativeswill result in changes to the Company's plans or will be consummated, and thereis no certainty that any strategic alternative will involve a transactionfor shareholders at a share price equal to or above thecurrent trading price of the Company's shares, bearing in mind thatthe trading market for the Company's shares is relatively inactive and that theCompany has realized losses from operations during recentperiods.   

The strategicadvisory services agreement (the "Agreement") with Mastodon Ventures, Inc.("Mastodon"), provides that Mastodon will provide the Company with exclusiveadvisory services related to the possible restructuring of certain lease anddebt agreements of the Company and the identification of possible additionalsources of capital for the Company.  The services include but are not limitedto assistance with the preparation of information, structuring of a plan,negotiations with potential investors and lenders, preparation of any documentsrequired to be filed with federal and state agencies relating to a restructuringplan and analyzing other strategic alternatives.

The term of theAgreement is for six months and terminable by the Company or Mastodon uponthirty days written notice.  Mastodon will receive an initial retainer fee of$25,000 together with three monthly payments of $7,500 each made in October,November and December 2009 and a Success Fee of up to $250,000 upon thecompletion of a restructuring event.  The maximum aggregate fees to Mastodonshall not exceed $297,500 and the Agreement includes provisions for the paymentof lesser fees based upon the amount and type of capital raised, type of restructuringplan implemented or if within 12 months following the termination of theAgreement the Company enters into an agreement with persons or entities identifiedby Mastodon or the Company during the term of the Agreement. 

While theAgreement provides that Mastodon is being engaged by the Company as an advisorto the Company to explore strategic options, Mastodon understands that theBoard of Directors of the Company has appointed a Special Committee to considercertain of such options on behalf of the shareholders of theCompany.  Mastodon agrees that its services shallinclude communicating with such Special Committee as it may reasonably request and,if directed by such Committee, Mastodon shall hold such communications inconfidence.

On April 20,2009 as reported on form 8-K, Good Times Restaurants Inc. (the "Company") andGood Times Drive Thru Inc. ("GTDT"), a wholly owned subsidiary of the Company,entered into a loan agreement with Golden Bridge, LLC ("Golden Bridge"),pursuant to which Golden Bridge made a loan of $185,000 (the "Golden Bridge Loan")to GTDT to be used for restaurant marketing and other working capital needs.The Golden Bridge Loan is evidenced by a promissory note dated April 20, 2009(the "Golden Bridge Note") made by the Company and GTDT, as co-makers, and bearsinterest at a rate of 10% per annum on the unpaid principal balance.  TheGolden Bridge Note provides for monthly interest payments and will mature andbe due and payable in full on July 10, 2010.

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The GoldenBridge Loan Agreement and Note are subject to the terms of an Intercreditor Agreementdated April 20, 2009 (the "Intercreditor Agreement"), among the Company, GTDT,Golden Bridge and PFGI II, LLC ("PFGI").  As previously reported by theCompany, GTDT currently has a $2,500,000 revolving line of credit with PFGI(the "PFGI Loan"), which was scheduled to mature on July 10, 2009. Inconnection with PFGI's entry into the Intercreditor Agreement, GTDT and theCompany entered into a first amendment to the amended and restated promissorynote dated April 20, 2009 (the "PFGI Note Amendment"), which extended thematurity date of the PFGI Loan until July 10, 2010 and eliminated a loan balancethreshold for release of the collateral securing the PFGI Loan.

In connectionwith the Golden Bridge Loan, the Company issued a three-year warrant datedApril 20, 2009 (the "Warrant") to Golden Bridge which provides that GoldenBridge may at any time from April 20, 2009 until April 20, 2012 purchase up to92,500 shares of the Company's common stock (the "Warrant Shares") at anexercise price of $1.15 per share. The fair value of the Warrant issued wasdetermined to be $42,000 with the following assumptions: 1) risk free interestrate of 1.27%, 2) an expected life of 3 years, and 3) an expected dividendyield of zero. The fair value of $42,000 was charged to the note discount andcredited to Additional Paid in Capital. The note discount is being amortizedover fourteen months and charged to interest expense.

See FinancingActivities under the Liquidity and Capital Resources section Part II, Item 7.Management's Discussion and Analysis of Financial Condition and Results ofOperations below for further details of the above transaction.

As reported onthe form 8-K filed on January 23, 2009, we are in default of certain technicalloan covenants on our note payable to Wells Fargo Bank, N.A. (the "Bank").Therefore the amount owing under this facility is reflected as a current liabilityin the accompanying Condensed Consolidated Balance Sheet as of September 30,2009. We have never been in payment default on the note and expect to be ableto remain current on payments in fiscal 2010, depending however on our salestrends and cash flow from operations.  On February 9, 2009 we received aReservation of Rights letter from the Bank formally notifying us of the defaultof the Earnings Before Interest Taxes and Depreciation ("EBITDA") CoverageRatio of not less than 1.5 to 1.0 and the Tangible Net Worth of not less than$5,000,000 as set forth in the Credit Agreement for the period ending December31, 2008. The letter serves as notice that in light of the foregoing events ofdefault, the Bank is reserving all of its rights and remedies under the CreditAgreement and related agreements.

The Bank is notaccelerating the loan at this time and is continuing to accept regularlyscheduled payments of principal and interest under the loan; however the acceptanceof payments under the loan does not constitute a modification of the CreditAgreement or a waiver of any of the covenants or of the Bank's rights orremedies under the Credit Agreement, including the right to accelerate the loanin the future after the giving of notice.  We will continue to work with theBank on a Required Corrective Action for compliance with existing or modifiedloan covenants.  There can be no assurance that the Bank will in the future agreeto modify or waive any of the loan covenants or waive any of its rights orremedies under the Credit Agreement and we require additional financing torepay the loan balance.  The loan is secured by security agreements coveringthe equipment of four restaurants.

In December2007 we granted permission for a North Dakota franchisee to terminate theirGood Times franchise agreements in our dual brand concept with Taco John'sInternational and effective December 2008 one Wyoming dual brand franchiseagreement was also terminated.  Our dual brand test agreement expired in September2008 by mutual agreement. However, one additional franchised dual brandrestaurant opened in December 2008 in Sheridan, Wyoming.

InAugust 2008 we announced the suspension of development of Good Timesrestaurants under a 2007 Development Agreement with Zen Partners LLC, in whichDavid Grissen, a significant stockholder and a member of our Board of Directors,has a 20% ownership interest.  No restaurants have been developed under theagreement.  We may reevaluate expansion discussion with Zen Partners LLC asconditions impacting our sales trends, the macroeconomic environment and creditmarkets may change. 

**Conceptand Business Strategy:**We operate with two different formats that have evolved over the course of ourhistory:  a smaller, 880 square foot double drive thru building focused ondrive thru service and limited walk up service; and a newer 2,400 to 2,700square foot, 70 seat dining room format that is the model for future stores. We are currently further refining the prototype design to reduce developmentcosts and improve the return on investment model for company owned andfranchised restaurant expansion with a 2,000 square foot, 50 seat dining roomdesign that will carry forward all of the core design elements of our priorprototype design.

In light of the last two years' sales declinesthat began at the start of the current economic recession, we are primarilyfocused on regaining positive growth in our existing stores' sales.  During thelast year we have upgraded the quality and portions of our core hamburger andchicken products, introduced new products, run several different promotionsdiscounting our premium products, reduced the price of our most popular hamburgeritem and introduced Everyday Values in both our core and fountain menus withprice points from $1.25 to $1.99.  While our primary value proposition for theconsumer is derived from the quality and taste of our products, the currentcompetitive and consumer spending environment continues to redefine valueexpectations within the hamburger quick service restaurant segment and a largernumber of transactions are being driven by the availability of menu items at aneven lower price point of $1 and below. 

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We plan to become more competitive for consumersthrough re-engineering smaller menu items at lower price points rather thanfocus on discounting premium products that are our iconic "go to for" menuitems.  The lower priced menu items will still be consistent with our qualitybrand position offering fresh, all natural, made to order products availableonly at Good Times.  While we do not anticipate a $1 menu, we are testing andplan to implement lower price points for the increasingly value consciouscustomer.  We believe we have effective premium and mid-tier priced menuofferings, but need to strengthen our offerings for customers that want smallerportions and lower price options.

We are continuing to implement every possiblequality enhancement to our core menu in burgers, chicken, fries and fountainproducts to anchor our quality leadership in the quick service restaurantindustry.  We have been testing fresh, hand cut fries for over six months andare in the process of rolling them out system wide to replace our seasoned,battered Wild Fry.  We have found that our Wild Fry, while unique, for manycustomers limits their frequency of use of Good Times.  Our new fresh, hand cutfries are unique to QSR in our market and will be supported by our marketingcampaign of "Get Back to What's Good!"  We also have several other new productsin development that will be unique to Good Times and we will continue to focuson innovation within our current menu categories as well as very selectiveinnovation in products with broad appeal for added variety.  The core of ourbrand position is to continue to offer the highest quality, best tastingburgers, fries & frozen custard available in the quick service restaurantsegment. 

Our core strategies have not changed and wecontinue to focus on the following initiatives to regain positive sales growth:

§  *Focuson our most important drivers of success:*

o   *Values. *Westrive to build and develop behaviors and expectations around what we valuemost throughout the company: integrity, continued improvement, customer loyaltyand respect for each other.

o   *People.* Beginningwith our Operating Partner Program, people are our strongest asset.  We seek tohire high quality people throughout and provide them with comprehensivetraining programs to ensure that we deliver consistently superior products andservice.

o   *Distinctivequality. *Westrive to offer unique, highly distinctive tastes with the highest qualityingredients available in the quick service restaurant category.

o   *Excellentsystems.* Westrive to provide the best systems and processes in every area to free our managementto focus on leading their people.

§ *Offerhigh quality, unique menu items that provide exceptional value. *Ourrestaurants feature menu items that are unique in the quick service segment,and flavor profiles that are associated more with casual theme restaurants thanwith fast food.  Whenever possible, products support the brand umbrella of"fresh, high quality ingredients" such as fresh frozen custard made freshthroughout the day in every restaurant, 100% all natural Coleman beef, freshsqueezed lemonade, grilled honey cured bacon, sliced Bermuda onions andtoppings such as real guacamole,  grilled pineapple and sautéed mushrooms. Each menu category has signature recipes with fun, irreverent names that buildGood Times' non-traditional personality such as Wild Fries with Wild DippinSauce, Big Daddy Bacon Cheeseburger, Mighty Deluxe, Burnin' Buffalo Chicken andCappuccino Mocha Joe, Raspberry Torte and Strawberry Cheesecake AddictionCustard Spoonbenders.  We have made significant changes to our entire menu toleverage our heritage of quality products and to position the Good Times brandfor a more unique and highly differentiated consumer experience.   Thoseproduct and system changes include the following:

a.      Theintroduction of fresh, never frozen, all natural, purebred Angus beef for allof our burgers.  The beef is Certified Humanely Raised, has never hadantibiotics or growth hormones and is vegetarian fed. 

b.     Increased thesize of our hamburger patties by approximately 10% on a new split top, spongebaked bun that is 20% heavier with increased portions of fresh produce.

c.      Reduced theprice for our core Deluxe Burger and Deluxe Cheeseburger for a stronger valueproposition.

d.     Established anew fresh grilled, honey cured bacon burger category with new flavor profiles.

e.      Reworked ourchicken category with 100% breast meat sandwiches and tenders with revisedflavor profiles that are unique to fast food.

f.       Tested,validated and are rolling out fresh, hand-cut fries cut fresh daily from wholeIdaho russet potatoes.

g.      We willcontinue to raise the sales and promotional activity of our fountain categoryof fresh squeezed lemonades, fresh frozen custard treats, shakes and floats.

h.      We areretraining team members in every restaurant on every position with newstandards.

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•        *Establisha unique brand position in quick service restaurants*.  We aspireto have Good Times stand for "providing food the way it used to be.  Good Timesis bringing real food back to fast food with pure, wholesome food that tastesthe way food used to taste."  Key brand support for that will includeattributes such as "Fresh", "All Natural", "Fresh Grilled", "Authentic","Homemade", and "Fresh Squeezed" with a theme of fresh ingredients and handcrafted food. 

§ *Continuallyimprove our fast, friendly, personal customer service.*We strive tooptimize and personalize the interaction between our employees and customers,particularly at the points of order and payment, to build a reputation ashaving the friendliest service.  We manage the face to face interaction withour customers through extensive employee screening and hospitality training toensure their experience is punctuated by attentive, friendly service.  Duringfiscal 2009 we introduced a new online screening and hiring system to reduceour hourly employee turnover and hire for good service attitudes. Additionally, we introduced video training tools for the first time that webelieve will enhance consistent execution of our quality standards. Speed ofservice through our drive thru lanes is important to the consumers' need forconvenience, but is always secondary to delivering the highest quality productpossible.  We monitor each car's service time and have developed incentiveprograms for management and employees to maintain our quick service standards.

§ *Buildcustomer loyalty through a unique brand experience. *In addition tofast friendly service and great tasting products, we strive to maintain clean,safe and appealing facilities with a particular emphasis on well groomedlandscaping, freshly painted exteriors and merchandising that highlights theunique product attributes and flavors of our products.  We believe thateverything the customer sees, smells, hears and feels influences their overallimpression and the reputation of Good Times and that Good Times' targetcustomer is seeking more out of even a quick service restaurant experience.  

§ *Buildawareness of the Good Times Burgers & Frozen Custard brand.*We believethat Good Times has built substantial brand equity among our customers and hasbecome known for our quality, service and signature tastes, particularly withinthe hamburger category.  We believe there is significant opportunity tocontinue to build that reputation within the hamburger category by continuingto build a stronger overall value proposition and increase awareness of ourfrozen custard and fountain category. As capital becomes available to us tobuild out the Colorado market, we plan to increase our media advertising,raising our overall awareness and building a highly differentiated brandpersonality.  

§ *Continuallyimprove our employees' knowledge and proficiency of our core processes.*Our customers'experience is driven by the ability of our management and employees toconsistently execute clearly defined processes in every area of our business. We believe that our employees' abilities and attitudes are directly related toour ability to provide well designed service, production and operatingprocesses and effective training that allows them to continually learn, improveand succeed.  We train, test, certify and re-train all employees and managementon all of our core operating and management processes to continually improvelevels of proficiency.

**Current fiscal year initiatives**

1.    **ConsistentlyGrow Same Store Sales:** We will continue to focus on comparable restaurantsales driven by increases in guest counts and increases in the average guestcheck.  Same store sales decreased 12.4% in fiscal 2009 compared to fiscal2008.  We hope to increase guest counts later in fiscal 2010 through amulti-faceted approach to continually improve the Good Times brand experiencefor our customers by:

•      Establishinga more relevant value proposition that is centered on the availability of lowerprice choices and smaller portions.

•      Implementingfresh cut fries and other new product introductions that are unique to GoodTimes.

•      Evolvingthe Good Times brand position under a new umbrella of "Back to Real Food"supported by the marketing campaign's tagline of "Get Back to What's Good."

•      Improvingour execution on customer service and the delivery of our brand experiencethrough re-training of all of our employees on new standards and heightenedexpectations.

•      Continuingto reinvest in our existing facilities with enhanced landscaping, patios andexterior building finishes to improve the restaurants' curb appeal andappearance.  

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2.    **Improveour Income from Operations:** The quality, portioning and pricing changes toimprove our value proposition in fiscal 2009 resulted in an increase in ourcost of sales from 31.7% in fiscal 2008 to 33.7% in fiscal 2009.   We began tosee smaller increases in commodity costs later in the year, and our goal is toreduce our overall cost of sales in fiscal 2010, even with the introduction oflower price points for some of our menu items.  We implemented a cumulativetotal weighted menu price increase of 2.31% during fiscal 2009 and we expect totake modest price increases in fiscal 2010.  During fiscal 2009, we continuedto reduce non-service labor hours and reduced our hourly employee turnover fromapproximately 225% to approximately 155%.  We reduced our General &Administrative costs by $474,000 in fiscal 2009 and we are evaluating eachrestaurant's profitability and may sell or sublease a small number of lowvolume restaurants during fiscal 2010.   Approximately 40% to 45% ofincremental sales changes at each restaurant flow through to Income fromOperations, depending on the level of each restaurant's sales.  As a result,our restaurant operating margins are influenced most significantly from theleveraging or deleveraging of fixed and semi-variable expenses along with samestore sales increases or decreases.  

3.    **PursueStrategic Alternatives:**  As described above, the Company has hired MastodonVentures, Inc. to provide strategic advisory services and explore otherstrategic alternatives that will further the long-term business prospectsof the Company and provide incremental value to its shareholders. The strategicadvisory services agreement (the "Agreement") with Mastodon Ventures, Inc.("Mastodon"), provides that Mastodon will provide the Company with exclusiveadvisory services related to the possible restructuring of certain lease anddebt agreements of the Company and the identification of possible additionalsources of capital for the Company.  The services include but are not limitedto assistance with the preparation of information, structuring of a plan,negotiations with potential investors and lenders, preparation of any documentsrequired to be filed with federal and state agencies relating to a restructuringplan and analyzing other strategic alternatives.   

**Expansion strategy and site selection:** Our longerterm strategy of becoming a super regional brand in select contiguous marketsdepends on our ability to reverse our same store sales trends, on the consumerspending environment and on the availability of capital, which is currentlylimited.

Any new development would involve our newprototype restaurant design on sites that are on or adjacent to big box orgrocery store anchored shopping centers in high activity and employment areas. Our site selection for new restaurants is oriented toward slightly higherincome demographic areas than many of our urban locations and most of ourtargeted trade areas are in relatively high growth areas of the Denver,Colorado Springs and northern Colorado markets.

We lease most of our sites.  When we do purchaseand develop a site, we intend to sell the developed site into thesale-leaseback market under a long term lease.  Our primary site objective isto secure a suitable site, with the decision to buy or lease as a secondaryobjective.  Our site criteria includes a mix of substantial daily traffic,density of at least 30,000 people within a three mile radius, strong daytimepopulation and employment base, retail and entertainment traffic generators,good visibility and easy access.

**Restaurant locations:** We currentlyoperate and franchise a total of fifty-one Good Times restaurants, of whichforty-seven are in Colorado, with forty-two in the Denver greater metropolitanarea, three in Colorado Springs, one in Grand Junction and one in Silverthorne.

| ** **                              | **Total**                        | **Denver, CO**

**Greater  Metro**                             | **Colorado**

**Other** | **Idaho** | **Wyoming** | **North Dakota** |
|-----------------------------------------|----------------------------------|----------------------------------------------------------------|-------------------------|-----------|-------------|------------------|
| Good  Times co-owned & co-developed |     27            |          24            | 3                       |           |             |                  |
| Good  Times franchised                  |     16            |          13            | 2                       | 1         |             |                  |
| Dual  brand co-owned                    |       3 |            3 |                         |           |             |                  |
| Dual  brand franchised                  |       5 |            2 |                         |           | 2           | 1                |
| Total                                   |     51            |          42            | 5                       | 1         | 2           | 1                |

| **DECEMBER**                   |
|--------------------------------|
|                                | **2008** | **2009** |
| Company-owned restaurants      | 21 | 21 |
| Joint venture restaurants      | 9 | 9 |
| Franchise operated restaurants | 22 | 21 |
| Total  restaurants             | 52 | 51 |

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In October 2008 we opened one new company-ownedrestaurant in Firestone, Colorado. In December 2008 a Wyoming franchiseeterminated their Good Times franchise agreement in the dual brand concept andhas stopped selling Good Times products in one location.  Also in December 2008a franchisee opened a new dual brand restaurant in Sheridan, Wyoming. InOctober 2009 a franchisee operating a Good Times restaurant in Thornton,Colorado terminated their franchise agreement and closed the restaurant.  Weanticipate that we may close three low volume franchised restaurants. 

**Menu:** The menu of aGood Times Burgers & Frozen Custard restaurant is limited to hamburgers,cheeseburgers, chicken sandwiches, french fries, onion rings, fresh squeezedand frozen lemonades, soft drinks and frozen custard products.  Each menu itemis made to order at the time the customer places the order and is notpre-prepared.

The hamburger patty is prepared with speciallyformulated and seasoned Coleman 100% natural beef, served on a 4 1/4 inch bun. Coleman was acquired by Meyer All Natural Beef and as of January 2009 all ofour hamburgers are made from fresh, all natural, pure bred Angus beef. Hamburgers and cheeseburgers are garnished with fresh iceberg lettuce, freshsliced sweet redonions,mayonnaise,mustard,ketchup, pickles and fresh sliced tomatoes.  Other specialty hamburger toppingsinclude guacamole, fresh grilled honey cured bacon, and proprietary sauces. The chicken products include a spiced, battered whole muscle breast patty and agrilled seasoned breast patty, both served with mayonnaise, lettuce andtomatoes, and Chicken Dunkers, whole breast meat breaded strips. Signaturechicken sandwiches include the Burnin' Buffalo, Tasty Teriyaki, and GuacamoleChicken.  Equipment has been automated and equipped with compensating computersto deliver a consistent product and minimize variability in operating systems.

All natural Angus beef is raised without the useof any hormones, antibiotics or animal byproducts that are normally used in theopen beef market.  We believe that all natural beef delivers a better tastingproduct and, because of the rigorous protocols and testing that are a part ofthe Meyer processes, also may minimize the risk of any food-bornebacteria-related illnesses. 

Fresh frozen custard is a premium ice cream(requiring in excess of 10% butterfat content) with a proprietary vanilla blendthat is prepared from highly specialized equipment that minimizes the amount ofair that is added to the mix and that creates smaller ice crystals than otherfrozen dairy desserts.  The custard is scooped similarly to hard-packed icecream but is served at a slightly warmer temperature. The resulting product issmoother, creamier and thicker than typical soft serve or hard-packed ice creamproducts.  Good Times serves the frozen custard in cups and cones, specialtysundaes and "Spoonbenders", a mix of custard and toppings, and weanticipate it will continue to become a larger percentage of sales as wecontinue to develop custard products and awareness.

**Marketing & Advertising:** Our marketingstrategy focuses on:  1) driving comparable restaurant sales through attractingnew customers and increasing the frequency of visits by current customers; 2)communicating specific product news and attributes to build strong points ofdifference from competitors; and 3) communicating a unique, strong andconsistent brand.

Media is an important component of building GoodTimes' brand awareness and distinctiveness.  We spent our advertising dollarson both television and radio media during fiscal 2009.  The Colorado market isan expensive media market, so most of our advertising placement is not in primetime but in early and late fringe, prime access and late news time slots.  Aswe continue to develop more and more distinctiveness to Good Times' brand andincrease penetration of the Colorado market, we anticipate we will continue touse media advertising to increase overall awareness.

Another important component of our marketingefforts is point-of-sale and on-site merchandising.  We rotate new four colorproduct point-of-purchase displays every other month and support new productintroductions with extensive merchandising. Our restaurants with dining roomshave back-lit and front-lit product displays, table tents and product messagingthroughout.  Menu boards are kept fresh with new food photography and graphicsseveral times throughout the year.

We plan to redesign and expand the use of ourwebsite during fiscal 2010 and we use email marketing and social media as atool to build customer loyalty.  We have a marketing agreement with the PepsiCenter in Denver, Colorado to serve and promote Good Times' products in thatvenue.

**Operations**

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**Restaurant Management:** We havedeveloped Operating Partners in several of our restaurants as we are able torecruit qualified candidates.  We believe that this is a distinct competitiveadvantage that provides a higher level of service, quality control andstability over time. The objective of the Operating Partner Program is to haveeach partner develop a relationship with the employees, the customers and thecommunity at their restaurant and develop an ownership mentality withcommensurate rewards as sales increase over a longer period of time.  Theprogram allows an Operating Partner to earn 25% of a restaurant's improvementin cash flow over an established baseline.  Each Good Times unit employs anoperating partner or a general manager, one to two assistant managers andapproximately 15 to 25 employees, most of whom work part-time during threeshifts.  An eight to ten week training program is utilized to train restaurantmanagers on all phases of the operation.  Ongoing training is provided asnecessary. We believe that incentive compensation of our restaurant managers isessential to the success of our business.  Accordingly, in addition to asalary, managerial employees may be paid a bonus based upon proficiency inmeeting financial, customer service and quality performance objectives tied toa monthly scorecard of measures.

**Operational systems and processes:** We believethat we have some of the best operating systems and processes in the industry. Detailed processes have been developed for hourly, daily, weekly and monthlyresponsibilities that drive consistency across our system of restaurants andperformance against our standards within different day parts.  We utilize alabor program to determine optimal staffing needs of each restaurant based onits actual customer flow and demand.  We also employ several additionaloperational tools to continuously monitor and improve speed of service, foodwaste, food quality, sanitation, financial management and employeedevelopment.  We are moving toward automating and computerizing as many ofthese systems as possible into an integrated, digital management system.

The order system at each Good Times restaurant isequipped with an internal timing device that displays and records the time eachorder takes to prepare and deliver.  The total transaction time for thedelivery of food at the window is approximately 30 to 60 seconds during peaktimes.

We use several sources of customer feedback toevaluate each restaurant's service and quality performance, including anextensive, computerized secret shopper program, customer comment phone line,telephone surveys and web site comments.  Additionally, management uses bothits own primary consumer research for product development and to determinecustomer usage and attitude patterns as well as third party market researchthat evaluates Good Times' performance ratings on several different operatingattributes against key competitors.

**Training:** We strive tomaintain quality and consistency in each of our restaurants through the carefultraining and supervision of all our employees at all levels and theestablishment of, and adherence to, high standards relating to personnelperformance, food and beverage preparation and maintenance of our restaurants. Each manager must complete an eight to ten week training program, be certifiedon several core processes and is then closely supervised to show bothcomprehension and capability before they are allowed to manage autonomously. All of our training and development is based upon a "train, test, certify, re-train"cycle around standards and operating processes at all levels.  We conduct asemi-annual performance review with each manager to discuss prior performanceand future performance goals.  We have a defined weekly and monthly goalsetting process around service, employee development, financial management andstore maintenance goals for every restaurant.  During fiscal 2009, we implementedvideo training tools to drive training efficiencies and consistency.

**Recruiting and retention:** We seek tohire experienced restaurant managers and Operating Partners.  We supportemployees by offering competitive wages and benefits, including a 401(k) plan,medical insurance, stock options for regional managers and incentives plans atevery level that are tied to performance against key goals and objectives.  Wemotivate and prepare our employees by providing them with opportunities forincreased responsibilities and advancement.  We also provide various otherincentives, including vacations, car allowances, monthly performance bonusesand monetary rewards for managers who develop future managers for ourrestaurants.   In fiscal 2009, we implemented an online screening and hiringtool that has proven to reduce hourly employee turnover.

**Franchising:** Good Timeshas prepared prototype area rights and franchise agreements, a UniformFranchise Disclosure Document ("UFDD") and advertising material to be utilizedin soliciting prospective franchisees.  We seek to attract franchisees that areexperienced restaurant operators, well capitalized and have demonstrated the abilityto develop one to five restaurants.  We review sites selected for franchisesand monitor performance of franchise units.  We are not currently solicitingnew franchisees and will not do so until capital becomes more available and wehave regained positive same store sales momentum.

We estimate that it will cost a franchisee onaverage approximately $750,000 to $1,100,000 to open a restaurant with diningroom seating, including pre-opening costs and working capital, assuming theland is leased.  A franchisee typically will pay a royalty of 4% of net sales,an advertising materials fee of at least 1.5% of net sales, plus participationin regional advertising up to an additional 4% of net sales, or a higher amountapproved by the advertising cooperative, and initial development and franchisefees totaling $25,000 per restaurant.  Among the services and materials whichwe provide to franchisees are site selection assistance, plans andspecifications for construction of the Good Times Burgers and Frozen Custardrestaurants, an operating manual which includes product specifications andquality control procedures, training, on-site opening supervision and advicefrom time to time relating to operation of the franchised restaurants.

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After a franchise agreement is signed, we activelywork with and monitor our franchisees to ensure successful franchise operationsas well as compliance with Good Times systems and procedures.  During thedevelopment phase, we assist in the selection of sites and the development of prototypeand building plans, including all required changes by local municipalities anddevelopers.  We provide an opening team of trainers to assist in the opening ofthe restaurant and training of the employees.  We advise the franchisee onmenu, management training, marketing, and employee development.  On an ongoingbasis we conduct standards reviews of all franchise restaurants in key areasincluding product quality, service standards, restaurant cleanliness andsanitation, food safety and people development.

We have entered into thirteen franchise agreementsin the greater Denver metropolitan area.  Thirteen franchise restaurants andnine joint-venture restaurants are operating in the Denver metropolitan areamedia market.  Good Times franchise restaurants also operate in ColoradoSprings and Grand Junction, Colorado and in Boise, Idaho.  Dual brandedfranchised restaurants operate in Gillette and Sheridan, Wyoming, Ft. Collinsand Windsor, Colorado, and Bismarck, North Dakota.

**Management Information Systems:** Financial andmanagement control is maintained through the use of automated data processingand centralized accounting and management information systems that we provide. Sales, labor and cash data is collected daily via a restaurant back office systemwhich gathers data from the restaurant point-of-sale system.  Managementreceives daily, weekly and monthly reports identifying food, labor andoperating expenses and other significant indicators of restaurant performance. We believe that these reporting systems are sophisticated and enhance ourability to control and manage operations.

**Food Preparation, Quality Control& Purchasing:**We believe that we have some of the highest food quality standards in the quickservice restaurant industry.  Our systems are designed to protect our foodsupply throughout the preparation process.  We inspect specific qualifiedmanufacturers and work together with those manufacturers to providespecifications and quality controls.  Our operations management teams are trainedin a comprehensive safety and sanitation course provided by the NationalRestaurant Association.  Minimum cook temperature requirements and line checksthroughout the day ensure the safety and quality of both burgers and otheritems we use in our restaurants.

We currently purchase 100% of our restaurant foodand paper supplies from Yancey's Food Service.  We do not believe that thecurrent reliance on this sole vendor will have any long-term material adverseeffect since we believe that there are a sufficient number of other suppliersfrom which food and paper supplies could be purchased.  We do not anticipateany difficulty in continuing to obtain an adequate quantity of food and papersupplies of acceptable quality and at acceptable prices.

**Employees:** At December 15,2009, we had approximately 459 employees of which 383 are part time hourlyemployees and 76 are salaried employees working full time.  We considerour employee relations to be good.  None of our employees are covered by acollective bargaining agreement.

**Competition:** Therestaurant industry, including the fast food segment, is highly competitive. Good Times competes with a large number of other hamburger-oriented fast foodrestaurants in the areas in which it operates.  Many of these restaurants areowned and operated by regional and national restaurant chains, many of whichhave greater financial resources and experience than we do.  Restaurantcompanies that currently compete with Good Times in the Denver market includeMcDonald's, Burger King, Wendy's, Carl's Jr., Sonic and Jack in the Box. Double drive-through restaurant chains such as Rally's Hamburgers and Checker'sDrive-In Restaurants, which currently operate a total of over 800 doubledrive-through restaurants in various markets in the United States, are notcurrently operating in Colorado.  Culver's and Freddy's are the onlysignificant competitors offering frozen custard as a primary menu itemoperating in the Denver and Colorado Springs markets and both have asignificant presence in the targeted Midwestern markets for expansion. Additional "fast casual" hamburger restaurants are being developed in theColorado market, such as Smashburger and Five Guys, however, they do not havedrive-through service and generate an average per person check that isapproximately 50% higher than Good Times.

Our management believes that we may have acompetitive advantage in terms of quality of product compared to traditionalfast food hamburger chains.  Early development of our double drive-through conceptin Colorado has given us an advantage over other double drive-through chainsthat may seek to expand into Colorado because of our brand awareness andpresent restaurant locations.  Nevertheless, we may be at a competitivedisadvantage to other restaurant chains with greater name recognition andmarketing capability.  Furthermore, most of our competitors in the fast-foodbusiness operate more restaurants, have been established longer, and havegreater financial resources and name recognition than we do.  There is alsoactive competition for management personnel, as well as for attractivecommercial real estate sites suitable for restaurants.

**Trademarks**: Good Timeshas registered its mark "Good Times! Drive Thru Burgers"(SM) with theState of Colorado.  We have also registered our mark "Good Times Burgers &Frozen Custard" federally and with the State of Colorado.  Good Times receivedapproval of its federal registration of "Good Times" in 2003.  Inaddition we own trademarks or service marks that have been registered, or forwhich applications are pending, with the United States Patent and TrademarkOffice including but not limited to: "Mighty Deluxe", "Wild Fries","Spoonbender", "Chicken Dunkers", "Big Daddy Bacon Cheeseburger", and"Wild Dippin' Sauce". Our trademarks expire between 2010 and 2015.

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**Government Regulation:** Each GoodTimes restaurant is subject to the regulations of various health, sanitation,safety and fire agencies in the jurisdiction in which the restaurant islocated.  Difficulties or failures in obtaining the required licenses orapprovals could delay or prevent the opening of a new Good Times restaurant. Federal and state environmental regulations have not had a material effect onour operations. More stringent and varied requirements of local governmentalbodies with respect to zoning, land use and environmental factors could delayor prevent development of new restaurants in particular locations.  We aresubject to the Fair Labor Standards Act, which governs such matters as minimumwages, overtime, and other working conditions.  In addition, we are subject tothe Americans With Disabilities Act, which requires restaurants and otherfacilities open to the public to provide for access and use of facilities bythe handicapped.  Management believes that we are in compliance with theAmericans With Disabilities Act.

We are also subject to federal and state lawsregulating franchise operations, which vary from registration and disclosurerequirements in the offer and sale of franchises to the application ofstatutory standards regulating franchise relationships.

**Available Information:** Our Internetwebsite address is www.goodtimesburgers.com.  We make available free of chargethrough our website's investor relations information section our annual reportson Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, andany amendments to those reports filed with or furnished to the SEC underapplicable securities laws as soon as reasonably practical after weelectronically file such material with, or furnish it to, the SEC.  Our websiteinformation is not part of or incorporated by reference into this Annual Reporton Form 10-K.

**Special Note About Forward-LookingStatements:**From time to time the Company makes oral and written statements that reflectthe Company's current expectations regarding future results of operations,economic performance, financial condition and achievements of the Company.  Wetry, whenever possible, to identify these forward-looking statements by usingwords such as "anticipate," "assume," "believe,""estimate," "expect," "intend," "plan,""project," "may," "will," "would," andsimilar expressions  Certain forward-looking statements are included in thisForm 10-K, principally in the sections captioned "Description ofBusiness," and "Management's Discussion and Analysis of FinancialCondition and Results of Operations."  Forward-looking statements arerelated to, among other things:

§  businessobjectives and strategic plans;

§  operatingstrategies;

§  our ability toopen and operate additional restaurants profitably and the timing of suchopenings;

§  restaurant andfranchise acquisitions;

§  anticipatedprice increases;

§  expectedfuture revenues and earnings, comparable and non-comparable restaurant sales,results of operations, and future restaurant growth (both company-owned andfranchised);

§  estimatedcosts of opening and operating new restaurants, including general andadministrative, marketing, franchise development and restaurant operatingcosts;

§  anticipatedselling, general and administrative expenses and restaurant operating costs,including commodity prices, labor and energy costs; 

§  future capitalexpenditures;

§  ourexpectation that we will have adequate cash from operations and credit facilityborrowings to meet all future debt service, capital expenditure and workingcapital requirements in fiscal year 2010;

§  thesufficiency of the supply of commodities and labor pool to carry on ourbusiness;

§  success ofadvertising and marketing activities;

§  the absence ofany material adverse impact arising out of any current litigation in which weare involved;

§  impact of theadoption of new accounting standards and our financial and accounting systemsand analysis programs;

§  expectationsregarding competition and our competitive advantages;

§  impact of ourtrademarks, service marks, and other proprietary rights; and

§  effectivenessof our internal control over financial reporting.

Although we believe that the expectationsreflected in our forward-looking statements are based on reasonable assumptions,such expectations may prove to be materially incorrect due to known and unknownrisks and uncertainties.

In some cases, information regarding certainimportant factors that could cause actual results to differ materially from anyforward-looking statements appears together with such statement.  In addition,the factors described under Critical Accounting Policies and Estimates in PartII, Item 7, and Risk Factors in Part I, Item 1A, as well as other possiblefactors not listed, could cause actual results to differ materially from thoseexpressed in forward-looking statements, including, without limitation, thefollowing: concentration of restaurants in certain markets and lack of marketawareness in new markets; changes in disposable income; consumer spendingtrends and habits; increased competition in the quick service restaurantmarket; costs and availability of food and beverage inventory; our ability toattract qualified managers, employees, and franchisees; changes in theavailability of capital or credit facility borrowings; costs and other effectsof legal claims by employees, franchisees, customers, vendors, stockholders andothers, including settlement of those claims; effectiveness of managementstrategies and decisions; weather conditions and related events in regionswhere our restaurants are operated; and changes in accounting standardspolicies and practices or related interpretations by auditors or regulatoryentities.

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All forward-looking statements speak only as ofthe date made.  All subsequent written and oral forward-looking statementsattributable to us, or persons acting on our behalf, are expressly qualified intheir entirety by the cautionary statements.  Except as required by law, weundertake no obligation to update any forward-looking statement to reflectevents or circumstances after the date on which it is made or to reflect theoccurrence of anticipated or unanticipated events or circumstances.

**Item 1A.         Risk Factors.**

You should consider carefully the following riskfactors before making an investment decision with respect to Good TimesRestaurants' securities. You are cautioned that the risk factors discussedbelow are not exhaustive.

***Going Concern. ***As shown inthe accompanying financial statements, we have incurred operating losses in thecurrent and prior fiscal years and, due to loan covenant defaults, the entirebalance of an $846,000 note payable to Wells Fargo Bank N.A. is included incurrent liabilities.  If Wells Fargo were to accelerate payment of the notepayable and if we are not successful in raising additional operating capital,we would not have the ability to satisfy our liabilities in the normal courseof business.  It is our current objective to raise operating capital throughdebt and equity offerings, however there can be no assurance that we will besuccessful in raising the required additional capital.  As a result of theforegoing circumstances, our auditors have expressed in their report on ourconsolidated financial statements that there is doubt about our ability tocontinue as a going concern.

***We have accumulated losses.*** We haveincurred losses in every fiscal year since inception except 1999, 2002, 2006and 2007.  As of September 30, 2009 we had an accumulated deficit of $13,805,000. We cannot assure you that we will not have a loss for the current fiscal yearending September 30, 2010.  As of September 30, 2009, we had a working capital deficitof $1,200,000.

***We must sustain same store salesincreases*****.**  We mustsustain same store sales increases in existing restaurants to sustainprofitability and we experienced declines in our same store sales in fiscal2008 and fiscal 2009.  Sales increases will depend in part on the success ofour advertising and promotion of new and existing menu items and consumeracceptance.  We cannot assure that our advertising and promotional efforts willin fact be successful.

***New restaurants, when and if opened,may not be profitable, if at all, for several months****.*  Weanticipate that our new restaurants, when and if opened, will generally takeseveral months to reach normalized operating levels due to inefficienciestypically associated with new restaurants, including lack of market awareness,the need to hire and train a sufficient number of employees, operating costs,which are often materially greater during the first several months of operationthan thereafter, pre-opening costs and other factors.  In addition, restaurantsopened in new markets may open at lower average weekly sales volumes thanrestaurants opened in existing markets, and may have higher restaurant-leveloperating expense ratios than in existing markets.  Sales at restaurants openedin new markets may take longer to reach average annual company-owned restaurantsales, if at all, thereby affecting the profitability of these restaurants.

***Our operations are susceptible to thecost of and changes in food availability which could adversely affect ouroperating results.***  Our profitability depends in part on our abilityto anticipate and react to changes in food costs.  Various factors beyond ourcontrol, including adverse weather conditions, governmental regulation,production, availability, recalls of food products and seasonality may affectour food costs or cause a disruption in our supply chain.  We enter into annualcontracts with our beef and chicken suppliers.  Our contracts for chicken arefixed price contracts.  Our contracts for beef are generally based on currentmarket prices plus a processing fee.  Changes in the price or availability ofchicken or beef could materially adversely affect our profitability.  We cannotpredict whether we will be able to anticipate and react to changing food costsby adjusting our purchasing practices and menu prices, and a failure to do socould adversely affect our operating results.  In addition, because we providea "value-priced" product, we may not be able to pass along priceincreases to our guests.

***The macroeconomic recession couldaffect our operating results.***  The current state of the economy anddecreased consumer spending has adversely affected our sales over the lasteighteen months and may continue to cause material negative sales trends.  Acontinued shift in consumer purchases toward $1 value menus, in our competitivesegment, and a proliferation of heavy discounting by our major competitors mayalso continue to negatively affect our sales and operating results.  

***Price increases may impact guestvisits.*** We may make price increases on selected menu items in order to offset increasedoperating expenses we believe will be recurring.  Although we have notexperienced significant consumer resistance to our past price increases, wecannot provide assurance that this or other future price increases will notdeter guests from visiting our restaurants or affect their purchasingdecisions.

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***The hamburger restaurant market ishighly competitive*****.** The hamburger restaurant market ishighly competitive.  Our competitors include many recognized national andregional fast-food hamburger restaurant chains such as McDonald's, Burger King,Wendy's, Carl's Jr., Sonic, Jack in the Box and Culver's.  We also compete withsmall regional and local hamburger and other fast-food restaurants, many ofwhich feature drive-through service.  Most of our competitors have greaterfinancial resources, marketing programs and name recognition.  All of the majorhamburger chains have increasingly offered selected food items and combinationmeals at discounted prices and have recently intensified their promotions ofvalue priced meals.  Continued discounting by competitors may adversely affectthe revenues and profitability of our restaurants.

***Sites may be difficult to acquire.*** Location ofour restaurants in high-traffic and readily accessible areas is an importantfactor for our success.  Drive-through restaurants require sites with specificcharacteristics and there are a limited number of suitable sites available inour geographic markets.  Since suitable locations are in great demand, and inthe future we may not be able to obtain optimal sites at a reasonable cost.  Inaddition, we cannot assure you that the sites we do obtain will be successful.

***We will require additional financing*****.** In order tofully develop the Denver and Colorado Springs/Pueblo markets and to expand intomarkets outside of Colorado, we will require additional financing.  We cannotassure you that we will be able to access sufficient capital to adequatelyfinance our operations and our planned developments or that additionalfinancing will be available on reasonable terms.  The current economicrecession and status of the capital markets may adversely affect our ability toacquire additional debt or equity financing for working capital, new restaurantdevelopment, or refinancing of existing funding agreements.

***If our franchisees cannot develop orfinance new restaurants, build them on suitable sites or open them on schedule,our growth and success may be impeded.***  Under our current form ofarea development agreement, some franchisees must develop a predeterminednumber of restaurants according to a schedule that lasts for the term of theirdevelopment agreement.  Franchisees may not have access to the financial ormanagement resources that they need to open the restaurants required by theirdevelopment schedules, or may be unable to find suitable sites on which todevelop them.  Franchisees may not be able to negotiate acceptable lease orpurchase terms for the sites, obtain the necessary permits and governmentapprovals or meet construction schedules.  From time to time in the past, wehave agreed to extend or modify development schedules and we may do so in thefuture.  Any of these problems could slow our growth and reduce our franchiserevenues.

Additionally, our franchisees depend uponfinancing from banks and other financial institutions in order to construct andopen new restaurants.  Difficulty in obtaining adequate financing wouldadversely affect the number and rate of new restaurant openings by ourfranchisees and adversely affect our future franchise revenues.

***Our franchisees could take actionsthat could harm our business.***  Franchisees are independentcontractors and are not our employees.  We provide training and support tofranchisees; however, franchisees operate their restaurants as independentbusinesses.  Consequently, the quality of franchised restaurant operations maybe diminished by any number of factors beyond our control.  Moreover,franchisees may not successfully operate restaurants in a manner consistentwith our standards and requirements, or may not hire and train qualifiedmanagers and other restaurant personnel.  Our image and reputation, and theimage and reputation of other franchisees, may suffer materially andsystem-wide sales could significantly decline if our franchisees do not operatesuccessfully.

***We depend on key management employees*****.** We believeour current operations and future success depend largely on the continuedservices of our management employees, in particular Boyd E. Hoback, ourpresident and chief executive officer, and Scott LeFever, our vice president ofoperations.  Although we have entered into an employment agreement with Mr.Hoback, he may voluntarily terminate his employment with us at any time.  Inaddition, we do not maintain key-person insurance on Messrs. Hoback's or LeFever'slife.  The loss of Messrs. Hoback's or LeFever's services, or other keymanagement personnel, could have a material adverse effect on our financialcondition and results of operations.

***Labor shortages could slow our growthor harm our business.*** Our success depends in part upon our ability toattract, motivate and retain a sufficient number of qualified, high-energyemployees.  Qualified individuals needed to fill these positions are in shortsupply in some areas.  The inability to recruit and retain these individualsmay delay the planned openings of new restaurants or result in high employeeturnover in existing restaurants, which could harm our business.  Additionally,competition for qualified employees could require us to pay higher wages toattract sufficient employees, which could result in higher labor costs.  Mostof our employees are paid on an hourly basis.  The employees are paid inaccordance with applicable minimum wage regulations.  Accordingly, any increasein the minimum wage, whether state or federal, could have a material adverseimpact on our business.

***Nevada law and our articles of incorporation and bylawshave provisions that discourage corporate takeovers and could preventstockholders from realizing a premium on their investment.*** Weare subject to anti-takeover laws for Nevada corporations.  These anti-takeoverlaws prevent a Nevada corporation from engaging in a business combination withany stockholder, including all affiliates and associates of the stockholder,who owns 10% or more of the corporation's outstanding voting stock, for threeyears following the date that the stockholder acquired 10% or more of thecorporation's voting stock, unless specified conditions are met.

Our articles of incorporation and our bylawscontain a number of provisions that may deter or impede takeovers or changes ofcontrol or management.  These provisions:

§ authorizeour Board of Directors to establish one or more series of preferred stock, theterms of which can be determined by the Board of Directors at the time ofissuance;

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§ donot allow for cumulative voting in the election of directors unless required byapplicable law.  Under cumulative voting, a minority stockholder holding asufficient percentage of a class of shares may be able to ensure the election ofone or more directors;

§ statethat special meetings of our stockholders may be called only by the chairman ofthe board, the president or any two directors, and must be called by thepresident upon the written request of the holders of ten percent of the outstandingshares of capital stock entitled to vote at such special meeting; and

§ providethat the authorized number of directors is currently set at seven.

Theseprovisions, alone or in combination with each other, may discouragetransactions involving actual or potential changes of control, includingtransactions that otherwise could involve payment of a premium over prevailingmarket prices to stockholders for their common stock.

***Future changes in financial accounting standards maycause adverse unexpected operating results and affect our reported results ofoperations.***  Changes in accounting standards can have a significanteffect on our reported results and may affect our reporting of transactionscompleted before the change is effective.  As an example, in 2006, we adoptedthe change that requires us to record compensation expense in the statement ofoperations for employee stock options using the fair value method.  See Note 1to our Consolidated Financial Statements for further discussion.  New pronouncementsand varying interpretations of pronouncements have occurred and may occur inthe future.  Changes to existing rules or differing interpretations withrespect to our current practices may adversely affect our reported financialresults.

***OurNASDAQ Listing Is Important.*****Our commonstock is currently listed for trading on the NASDAQ Capital Market.  The NASDAQmaintenance rules require, among other things, that our common stock priceremains above $1.00 per share and that we have minimum net tangible assets inexcess of $2 million.  We were required to obtain shareholder approval in 1998for a reverse stock split to maintain a sufficient per share price to preserveour NASDAQ listing.

***Weare subject to extensive government regulation that may adversely hinder orimpact our ability to govern various aspects of our business including ourability to expand and develop our restaurants.***  The restaurant industry issubject to various federal, state and local government regulations, includingthose relating to the sale of food.  While in the past we have been able toobtain and maintain the necessary governmental licenses, permits and approvals,our failure to maintain these licenses, permits and approvals, including foodlicenses, could adversely affect our operating results.  Difficulties orfailures in obtaining the required licenses and approvals could delay or resultin our decision to cancel the opening of new restaurants.  Local authoritiesmay suspend or deny renewal of our food licenses if they determine that ourconduct does not meet applicable standards or if there are changes inregulations.

Variousfederal and state labor laws govern our relationship with our employees andaffect operating costs.  These laws govern minimum wage requirements, such as thoseto be imposed by recently enacted legislation in Colorado, overtime pay, mealand rest breaks, unemployment tax rates, workers' compensation rates,citizenship or residency requirements, child labor regulations and salestaxes.  Additional government-imposed increases in minimum wages, overtime pay,paid leaves of absence and mandated health benefits may increase our operatingcosts.

Thefederal Americans with Disabilities Act prohibits discrimination on the basisof disability in public accommodations and employment.  Although ourrestaurants are designed to be accessible to the disabled, we could be requiredto make modifications to our restaurants to provide service to, or makereasonable accommodations for, disabled persons.

Weare also subject to federal and state laws that regulate the offer and sale offranchises and aspects of the licensor-licensee relationship.  Many statefranchise laws impose restrictions on the franchise agreement, includinglimitations on non-competition provisions and the termination or non-renewal ofa franchise.  Some states require that franchise materials be registered beforefranchises can be offered or sold in the state.

***Compliancewith changing regulation of corporate governance and public disclosure mayresult in additional expenses.*** Keeping abreast of, and in compliance with, changing laws, regulations andstandards relating to corporate governance and public disclosure, including theSarbanes-Oxley Act of 2002, new SEC regulations and The NASDAQ  Market rules,has required an increased amount of management attention and expense.  Weremain committed to maintaining high standards of corporate governance andpublic disclosure.  As a result, we intend to invest all reasonably necessaryresources to comply with evolving standards, and this investment has resultedin and will continue to result in increased general and administrative expensesand a diversion of management time and attention from revenue-generatingactivities to compliance activities.  Accordingly, we are continuing to explorealternatives to reduce the cost burdens of being a publicly held entity.

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***Risksrelated to internal controls.*** Public companies in the United States are required to review their internalcontrols as set forth in the Sarbanes-Oxley Act of 2002.  It should be notedthat any system of controls, however well designed and operated, can provideonly reasonable, and not absolute, assurance that the objectives of the systemare met.  In addition, the design of any control system is based in part uponcertain assumptions about the likelihood of future events.  Because of theseand other inherent limitations of control systems, there can be no assurancethat any design will succeed in achieving its stated goals under all potentialfuture conditions, regardless of how remote.  If the internal controls put inplace by us are not adequate or in conformity with the requirements of theSarbanes-Oxley Act of 2002, and the rules and regulations promulgated by theSecurities and Exchange Commission, we may be forced to restate our financialstatements and take other actions which will take significant financial andmanagerial resources, as well as be subject to fines and other governmentenforcement actions.

***Healthconcerns relating to the consumption of beef, chicken or other food productscould affect consumer preferences and could negatively impact our results ofoperations.*** Like other restaurant chains, consumer preferences could be affected by healthconcerns about the avian influenza, also known as bird flu, or the consumptionof beef, the key ingredient in many of our menu items, or negative publicityconcerning food quality, illness and injury generally, such as negativepublicity concerning E. coli, "mad cow" or "foot-and-mouth"disease, publication of government or industry findings concerning foodproducts served by us, or other health concerns or operating issues stemmingfrom one restaurant or a limited number of restaurants.  This negativepublicity may adversely affect demand for our food and could result in adecrease in guest traffic to our restaurants.  If we react to the negativepublicity by changing our concept or our menu we may lose guests who do notprefer the new concept or menu, and may not be able to attract a sufficient newguest base to produce the revenue needed to make our restaurants profitable. In addition, we may have different or additional competitors for our intendedguests as a result of a concept change and may not be able to competesuccessfully against those competitors.  A decrease in guest traffic to ourrestaurants as a result of these health concerns or negative publicity or as aresult of a change in our menu or concept could materially harm our business.

**Item1B.         Unresolved Staff Comments.**

Notapplicable.

**Item2.          Properties.**

We currently lease approximately 3,700 square feetof space for our executive offices in Golden, Colorado for approximately $55,000per year undera lease agreement which expired in September 2009. We are currently leasing thespace on a month to month basis. The space is leased from The BaileyCompany, a significant stockholder in the Company, at their corporateheadquarters

As of December 15, 2009, Good Times has an ownershipinterest in thirty Good Times units, all of which are located in Colorado. Nine of these restaurants are held in joint venture limited partnerships ofwhich Good Times is the general partner.  Good Times has a 50% interest inseven of the partnership restaurants, a 78% interest in one restaurant and a51% interest in another restaurant.  There are twenty one Good Times units thatare wholly owned by Good Times.

Most of our existing Good Times restaurants are acombination of free-standing structures containing approximately 880 squarefeet for the double drive thru format and approximately 2400 square feet forour prototype building with a 70 seat dining room.  In addition, we haveseveral restaurants that are conversions from other concepts in various sizesranging from 1700 square feet to 3500 square feet.  The buildings are situatedon lots of approximately 18,000 to 50,000 square feet.  Certain restaurantsserve as collateral for the underlying debt financing arrangements as discussedin the Notes to Consolidated Financial Statements included in this report.  Weintend to acquire new sites both through ground leases and purchase agreementssupported by mortgage and leasehold financing arrangements and throughsale-leaseback agreements.

All of therestaurants are regularly maintained by our repair and maintenance staff as wellas by outside contractors, when necessary.  We believe that all of ourproperties are in good condition and that there will be a need for periodiccapital expenditures to maintain the operational and aesthetic integrity of ourproperties for the foreseeable future, including recurring maintenance andperiodic capital improvements.  All of our properties are covered up toreplacement cost under our property and casualty insurance policies and in theopinion of management are adequately covered by insurance.

**Item 3.          Legal Proceedings.**

Weare not involved in any material legal proceedings.  We are subject, from timeto time, to various lawsuits in the normal course of business.  These lawsuitsare not expected to have a material impact.

**Item 4.           Submission ofMatters to a Vote of Security Holders.**

No matters were submitted to a vote ofsecurity holders during the fourth quarter of the fiscal year ended September30, 2009.

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**PARTII**

**Item 5.           Marketfor Registrant's Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities.**

Shares of Good Times Restaurants Inc. common stockare listed for trading on the NASDAQ Capital Market under the symbol "GTIM." The following table presents the quarterly high and low bid prices for GoodTimes Restaurants common stock as reported by the NASDAQ Capital Market foreach quarter within the last two fiscal years.  The quotations reflectinterdealer prices, without retail mark-ups, markdowns or commissions and maynot represent actual transactions.

| **2008**               | **2009** |
|------------------------|----------|
| ****
**Quarter Ended** | **High** | **Low** | **Quarter Ended** | **High** | **Low** |  
December 31, 2007

$6.25

$5.10

December 31, 2008

$2.95

$0.76

 
March 31, 2008

$6.25

$4.99

March 31, 2009

$1.57

$0.75

 
June 30, 2008

$5.50

$2.08

June 30, 2009

$2.50

$1.00

 
September 30, 2008

$3.50

$1.23

September 30, 2009

$1.65

$1.08

 
As of December 15, 2009 there were approximately 225holders of record of Common Stock.  However, management estimates that thereare not fewer than 1,390 beneficial owners of our Common Stock.

**Dividend Policy:** We have neverpaid dividends on our common stock and do not anticipate paying dividends inthe foreseeable future.  In addition, we have obtained financing underloan agreements that restrict the payment of dividends.  Our ability topay future dividends will necessarily depend on our earnings and financialcondition.  However, since restaurant development is capital intensive, wecurrently intend to retain any earnings for that purpose.

**Disclosure with Respect to theCompany's Equity Compensation Plans:** We maintain the 2008 Omnibus EquityIncentive Compensation Plan, pursuant to which we may grant equity awards toeligible persons, and have outstanding stock options granted under our 2001Good Times Restaurants Stock Option Plan, 1992 Incentive Stock Option Plan and1992 Non-Statutory Stock Option Plan.  For additional information, see Note 12,Stockholders' Equity, in the Notes to the Consolidated Financial Statementsincluded in this report. The following table gives information about equityawards under our plans as of September 30, 2009.

**Equity Compensation Plan Information**
****
** **

**(a)**

**(b)**

**(c)**

**Plan category**

**Number of  securities to be issued upon exercise of outstanding options, warrants &  rights**

**Weighted-average  exercise price of outstanding options, warrants & rights**

**Number of  securities remaining available for future issuance under equity compensation  plans (excluding securities reflected in column (a))**

Equity  compensation plans approved by security holders

379,231

$3.55

172,841

Total

379,231

$3.55

172,841

** **

14

** **

** Item 6.     SelectedFinancial Data.**

The selected financial data on the following pagesare derived from our historical financial statements and is qualified in itsentirety by such financial statements which are included in Item 8 hereof.

The followingpresents certain historical financial information of the Company.  Thisfinancial information includes the combined operations of the Company and itssubsidiary for the fiscal years ended September 30, 2005 to 2009.

** **

**September**

**Operating  Data:**

**2009**

**2008**

**2007**

**2006**

**2005**

Restaurant  sales

$ 23,213,000

$ 25,244,000

$ 24,215,000

$ 20,329,000

$ 16,510,000

Franchise  fees and royalties

536,000

638,000

740,000

606,000

451,000

         Total  Net Revenues

23,749,000

25,882,000

24,955,000

20,935,000

16,961,000

Restaurant Operating Costs:

    Food  and packaging costs

7,816,000

8,002,000

7,589,000

6,338,000

5,434,000

    Payroll  and other employee benefit costs

8,138,000

8,780,000

8,063,000

6,584,000

5,278,000

    Occupancy  and other operating costs

4,877,000

4,881,000

4,393,000

3,797,000

2,966,000

    New  store pre-opening costs

15,000

38,000

118,000

182,000

127,000

    Depreciation  and amortization

1,262,000

1,283,000

1,223,000

997,000

795,000

         Total restaurant operating  costs

22,108,000

22,984,000

21,386,000

17,898,000

14,600,000

    Selling, General &  Administrative Expenses

2,860,000

3,567,000

3,226,000

2,752,000

2,548,000

    Franchise  Costs

161,000

312,000

161,000

166,000

98,000

    Gain on  disposal of restaurants and equipment

(28,000)

(35,000)

(17,000)

(57,000)

(22,000)

Income  (Loss) from Operations

($ 1,352,000)

($   946,000)

$   200,000

$   176,000

($     265,000)

Other Income and (expenses)

    Minority  income (expense), net

54,000

(113,000)

(211,000)

(246,000)

(201,000)

     Unrealized  loss on interest rate swap

(87,000)

-

-

-

-

     Interest  income (expense), net

(261,000)

(13,000)

40,000

87,000

48,000

         Total  other expenses

(294,000)

(126,000)

(171,000)

(159,000)

(153,000)

Net Income (Loss) before Income  Taxes

($ 1,646,000)

($ 1,072,000)

$    29,000

$   17,000

($   418,000)

         Less  imputed preferred stock dividend

-

-

-

-

533,000

         Income tax expense

-

4,000

-

-

-

Net Income (Loss) available to  Common Shareholders

($ 1,646,000)

($ 1,076,000)

$      29,000

$   17,000

($    951,000)

Basic  and Diluted Earnings (Loss) Per Share

($          .42)

($          .28)

$         .01

$       .01

($           .40)

* *

**Balance  Sheet Data:**

Working  Capital (Deficit)

($1,200,000)

($ 2,082,000)

$   532,000

$  1,547,000

$  2,722,000

Total  assets

10,254,000

11,920,000

11,544,000

10,693,000

9,431,000

Minority  Interest

428,000

584,000

751,000

795,000

620,000

Long-term  debt

2,478,000

846,000

970,000

1,293,000

522,000

Stockholders'  equity

$ 3,950,000

$ 5,409,000

$     6,333,000

$  6,082,000

$  5,999,000

 

15

 

**Item 7.      Management's Discussionand Analysis of Financial Condition and Results of Operations.**

**Results of Operations**

**Net Revenues:** Net revenuesfor fiscal 2009 decreased $2,133,000 (8.2%) to $23,749,000 from $25,882,000 forfiscal 2008.  Same store restaurant sales decreased $2,587,000 or (12.4%),during fiscal 2009. Restaurants are included in same store sales after theyhave been open a full fifteen months and only Good Times restaurants areincluded while dual branded restaurants are excluded.  Restaurant sales decreased$292,000 due to one non-traditional company-owned restaurant not included insame store sales and increased $848,000 due to seven new, acquired or dualbranded company-owned restaurants that were opened or acquired in fiscal 2008and 2009. Net revenues decreased $102,000 in fiscal 2009 due to an increase infranchise fees of $13,000 offset by a decrease in franchise royalties of $115,000.

Our same store restaurant sales decline of 12.4%reflects the adverse impact the macroeconomic environment is having onconsumers' discretionary spending and the proliferation of heavy promotion of$1 value menus and discounting by competitors. We had shown same store salesgrowth in sixteen consecutive quarters leading into the third quarter of fiscal2008.  Our outlook for fiscal 2010 remains cautious as the economic pressuresmay continue to impact consumer spending and we anticipate that we willcontinue to face increased competitive pricing pressure.  While we areimplementing several broad product and brand initiatives during fiscal 2010 toimprove our core value proposition, our sales may continue to be adverselyaffected during the economic recession.

Average restaurant sales for company-owned andco-developed restaurants (including double drive thru restaurants andrestaurants with dining rooms but excluding dual brand restaurants) for fiscal2008 and 2009 were as follows:

** **

**Fiscal  2009**

**Fiscal  2008**

Company  operated

$773,000

$916,000

For factorswhich may affect future results of operations, please refer to the sectionentitled "Current Fiscal Year Initiatives" in Item 1 on pages 4 - 5 of thisreport and a related discussion of planned product and system changes discussedin the section entitled "Concept and Business Strategy" in Item 1 on pages 2 -4 of this report.

**Restaurant Operating Costs:** Restaurantoperating costs as a percent of restaurant sales were 95.2% for fiscal 2009compared to 91.1% in fiscal 2008.

The changes in restaurant-level costsare explained as follows:

Restaurant-level costs for the  period ended September 30, 2008

91.1%

Increase in food and packaging costs

2.0%

Increase in payroll and other  employee benefit costs

.3%

Increase in occupancy and other  operating costs

1.6%

Decrease in pre-open costs

(.1%)

Increase in depreciation and  amortization costs

     .30%

Restaurant-level costs for the  period ended September 30, 2009

95.2%

**Food and Packaging Costs:** Food andpackaging costs for fiscal 2009 decreased $186,000 from $8,002,000 (31.7% ofrestaurant sales) in fiscal 2008 to $7,816,000 (33.7% of restaurant sales). Weexperienced unprecedented increases in commodity costs including beef, bakery,soft drinks, dairy and packaging costs in fiscal 2008 with the majority ofthose increases occurring in May through July 2008. In fiscal 2009 we saw amoderation in food and packaging cost increases.

In fiscal 2008 and 2009 our weighted food andpackaging costs increased approximately 12% and 2%, respectively.  Thecumulative weighted menu price increases taken during fiscal 2008 and fiscal2009 were approximately 3.8% and 2.3%, respectively.  We anticipate limitedprice increases in fiscal 2010 with continued cost pressure on several corecommodities.

**Payroll and Other Employee BenefitCosts**:For fiscal 2009 payroll and other employee benefit costs decreased $642,000from $8,780,000 (34.8% of restaurant sales) in fiscal 2008 to $8,138,000 (35.1%of restaurant sales).

The decrease in payroll and other employee benefitcosts for fiscal 2009 is partially due to a decrease in restaurant sales.Payroll and benefit costs are semi-variable and therefore increase or decreaseas sales fluctuate. Additionally we have reduced our labor hours' allocationthrough increased efficiencies and improved our sales per employee hourefficiencies on service hours, thereby eliminating approximately $300,000 ofannual payroll costs. The new restaurant which opened in October 2008 operatedat a higher labor cost as a percent of sales due to higher initial labor costsuntil it reached mature staffing levels.  The three dual branded restaurantsalso have a higher labor cost as a percent of sales than Good Times single brandrestaurants.

16

**Occupancy and Other Costs:** For fiscal2009, occupancy and other costs decreased $4,000 from $4,881,000 (19.3% ofrestaurant sales) in fiscal 2008 to $4,877,000 (21% of restaurant sales).  The$4,000 decrease in occupancy and other costs are primarily attributable to:

§ Increasesin building rent of $68,000 due to normal rent escalations and the restaurantsacquired in fiscal 2008.

§ Increasesin property taxes of $58,000 related to valuation increases at existingrestaurants and the new and acquired restaurants.

§ Decreasein our accretion for deferred rent of $32,000.

§ Decreasesin restaurant repairs of $61,000 primarily due to contract maintenance services.

§ Decreasesin utility costs of $19,000 related to utility rate decreases.

Occupancy costs may increase as a percent of salesas new company-owned restaurants are developed due to higher rent associatedwith sale-leaseback operating leases, as well as increased property taxes onthose locations.

**New Store Pre-opening Costs:** For fiscal2009, new store pre-opening costs decreased $23,000 from $38,000 in fiscal 2008to $15,000.  New store pre-opening costs in fiscal 2008 and 2009 are related toone new company-owned restaurant that opened in October 2008. 

**Depreciationand Amortization Costs**: For fiscal 2009, depreciation and amortizationcosts decreased $21,000 from $1,283,000 in fiscal 2008 to $1,262,000. Depreciation costs increased due to $71,000 of depreciation expense in thethree acquired and new company-owned restaurants, offset by declining depreciationexpense in our aging company-owned restaurants.

**Selling, General and AdministrativeCosts:**For fiscal 2009, selling, general and administrative costs decreased $707,000from $3,567,000 (14.1% of restaurant sales) in fiscal 2008 to $2,860,000 (12.3%of restaurant sales) in fiscal 2009.  The decrease in selling, general andadministrative costs are partially attributable to decreased advertising costs,which decreased to $1,292,000 (5.6% of restaurant sales) for fiscal 2009 from$1,525,000 (6.0% of restaurant sales) for fiscal 2008, and a decrease ingeneral and administrative costs, which decreased to $1,568,000 (6.8% ofrestaurant sales) for fiscal 2009 from $2,042,000 (8.1% of restaurant sales)for fiscal 2008 (as explained below).

Thedecrease in advertising costs is primarily due to the decrease in restaurantsales, as contributions are made to the advertising materials fund and regionaladvertising cooperative based on a percentage of sales. In addition, $75,000 ofpayroll and employee benefit costs were eliminated in fiscal 2009 due to theretirement of our Vice President of Marketing in November 2008. We currentlyhave no plans to fill the position in the immediate future.

We anticipate that fiscal 2010 advertising willconsist primarily of television and radio advertising, on-site andpoint-of-purchase merchandising totaling approximately 5.8% of restaurantsales.  

The $474,000 decrease in general andadministrative cost is primarily attributable to:

§ Reductionsin payroll and employee benefit costs of $218,000.

§ Reductionsin training and recruiting expenses of $74,000.

§ Reductionin professional services of $61,000.

§ Netreductions in various other fixed expenses of $40,000.

§ Reductionin preliminary site costs related to the Omaha, Nebraska expansion of $81,000.

**Franchise Costs:** For fiscal2009, franchise costs decreased $151,000 from $312,000 (1.2% of total revenues)in fiscal 2008 to $161,000 (.7% of total revenues) in fiscal 2009.

The decrease in franchise costs is primarilyattributable to the reduction in payroll and employee benefit costs related tothe Vice President of Franchise Development position that was eliminated inJuly 2008 in conjunction with Good Times' exit from the planned Midwestexpansion. We incurred $12,000 in legal costs in the prior year related tofranchise registration filings. The current year includes a write off of$20,000 for legal fees incurred in prior years related to the Good Times/TacoJohn's Dual Brand franchise agreement.

**Gain on disposal of restaurants and equipment:** For fiscal2009, the gain on disposal of restaurants and equipment decreased $7,000 to $28,000from $35,000 in fiscal 2008.  The $28,000 gain on disposal of restaurants andequipment in fiscal 2009 is primarily related to the partial recognition ofdeferred gains related to two sale-leaseback transactions that were completedin fiscal 2004 and 2006.

17

**Income (Loss) from Operations:** The loss fromoperations was $1,352,000 in fiscal 2009 compared to a loss from operations of$946,000 in fiscal 2008.

**Net Income(Loss):** Net loss was $1,646,000 for fiscal 2009 comparedto a net loss of $1,076,000 in fiscal 2008.  The change from fiscal 2008 tofiscal 2009 was primarily attributable to the matters discussed in the"Net Revenues", "Food and Packaging Costs", "Selling,General and Administrative Costs" and "Franchise Costs" sectionsof Item 6.  In addition, 1) minority interest expense decreased $167,000 due todecreased income from restaurant operations of the joint venture restaurantsfor fiscal 2009; 2) net interest expense increased $248,000 in fiscal 2009 primarilydue to increased borrowings on our PFGI II, LLC line-of-credit and 3) an$87,000 unrealized loss in the current fiscal year related to our interest rateswap liability.

**Liquidity andCapital Resources**

**Cash andWorking Capital:**Asof September 30, 2009, we had $815,000 in cash and cash equivalents on hand. We currently plan to use the cash balance and any cash generated fromoperations for our working capital needs in fiscal 2010.  We anticipate that wewill require additional working capital of $300,000 to $500,000 during Januarythrough April, 2010 and we are pursuing additional sources of funding toincrease our working capital.   We are pursuing rent concessions from severalof our landlords and anticipate improved income from operations of $75,000 -$100,000 from those transactions in fiscal 2010. If circumstances require wemay contemplate the sale or sublease of selected underperforming restaurants infiscal 2010.  In April, 2009 we extended the maturity of our $2,500,000 line ofcredit with PFGI II, LLC to July, 2010 and have further extended the maturityto December 31, 2012 as described below (see "Financing" below).

As ofSeptember 30, 2009, we had a working capital deficit of $1,200,000 dueprimarily to the entire note payable to Wells Fargo Bank, N.A. of $846,000shown as a current liability due to certain loan covenant defaults that existedas of September 30, 2009. We are not in payment default under the note andanticipate remaining current on all principal and interest payments in fiscal2010, subject to our successfully raising additional operating capital.  Wehave received a Forbearance and Reservation of Rights letter from Wells FargoBank stating that they are accepting current principal and interest paymentsand are not currently accelerating the note, subject to agreeing to anacceptable Required Corrective Action for the covenant defaults.  It isunlikely that we will have an acceptable Required Corrective Action until our EarningsBefore Interest Taxes and Depreciation ("EBITDA") improves.  If Wells Fargowere to accelerate the note payable, we would need additional financing and wedo not currently have a source for such financing.  Additionally, we haverecorded an $87,000 current liability related to the unrealized loss on ourinterest rate swap, as described in Note 4 of the Notes to ConsolidatedFinancial Statements in Item 8.

Theaccompanying financial statements have been prepared on a going concern basis,which contemplates the realization of assets and the satisfaction ofliabilities in the normal course of business.  Due to the classification of theentire Wells Fargo note payable as a current liability and the right of WellsFargo to accelerate the required payment of the note, we do not show theability to fully satisfy our liabilities in the normal course of businesswithout raising additional capital.   It is our objective to acquire additionaloperating capital through debt and equity offerings and the possible sale of anexisting restaurant with such funds to be used for the repayment of the WellsFargo note and to increase our working capital.  We believe we will besuccessful in raising sufficient additional operating capital and inrestructuring our debt obligations, however there can be no assurance that wewill be successful in raising such additional funds.

The accompanyingfinancial statements do not include any adjustments relating to therecoverability and classification of assets and liabilities that might benecessary should we be unable to continue as a going concern.  Our continuationas a going concern is dependent upon on our ability to obtain additionaloperating capital, restructure our debt obligations and attain profitability.  

In December, 2009 we entered into anagreement to extend the maturity of the PFGI II, LLC loan to December 31, 2012and modified the terms of the loan to include a 25 year amortization periodwith a balloon payment on December 31, 2012.  As a result, the majority of the PFGIII LLC loan is shown as a long term liability as of September 30, 2009. Weanticipate either developing a new restaurant on the land we owncollateralizing the PFGI II loan and reducing the amount of the loan by thevalue of the land or selling the property and using the proceeds to reduce theloan, with estimated net proceeds of $800,000 to $1,000,000.  We will continueto market the other land and building we own that collateralizes the PFGI loanfor a sale and leaseback and plan to use the net proceeds to reduce the loan. 

**Financing:**

In May 2007 weborrowed $1,100,000 from Wells Fargo Bank under a note payable with an eightyear term with a floating interest rate at .50% below prime.  We simultaneouslyentered into an interest rate swap transaction with Wells Fargo Bank for thefull $1,100,000 with a fixed interest rate of 7.77% for the full eight yearterm coinciding with the note payable (see note 5 in item I. above). Asdiscussed above we are in default of certain loan covenants as of September 30,2009 on this Wells Fargo note, however we are not currently, and have neverbeen, in payment default under the note.

18

On March 1,2008, we acquired the assets of two restaurants from an existing franchisee fora total purchase price of $1,330,000, including the land, site improvements,building and equipment for one restaurant and site improvements, building andequipment on one restaurant.  The purchase price was funded primarily from cashon hand of $272,000 and $849,000 in net proceeds from a simultaneous sale-leasebacktransaction to a third party investor involving the land, building andimprovements of one of the restaurants acquired.

As additionalconsideration, notes receivable from the franchisee of $250,000 were forgiven,and a deferred gain of $26,000 was written off. The deferred gain was relatedto a prior sale to the franchisee of one of the restaurants acquired. We didnot record a gain or loss related to this acquisition. The financial results ofthe two restaurants have been included in our financial results from theacquisition date forward.

Theacquisition of the two restaurants was accounted for using the purchase methodas defined in FASB ASC 805-10, *Business Combinations*. The purchase pricewas allocated as follows:

Current assets  net of current liabilities

$            4,000

Property and  equipment     

        1,326,000

Total purchase  price

$      1,330,000

The sale-leaseback transaction was entered intosimultaneously with the acquisition and involved selling the land, building andimprovements of one of the acquired restaurants for net proceeds of $849,000.The sale-leaseback was the funding vehicle for the purchase of the tworestaurants and was not used to raise cash for the Company or increase ourliquidity. The assets sold in the sale-leaseback transaction were not recordedin our financial statements as the long term lease entered into does not meetany of the criteria for a capital lease and therefore qualifies as an operatinglease, as defined in FASB ASC 840-10, *Leases*. After the sale-leasebacktransaction was accounted for, it resulted in $476,000 in fixed assets and$14,000 in current assets recorded on our financial statements. We believe the$476,000 represents the fair value of the net assets acquired (after completionof the simultaneous sale-leaseback transaction) consisting of furniture,fixtures and equipment in two restaurants and the site improvements andbuilding in one restaurant.

In July 2008, we entered into a $2,500,000promissory note with an unrelated third party (PFGI II, LLC) and amended thatnote on April 20, 2009 extending the maturity to July 10, 2010 and again onDecember 14, 2009 extending the maturity to December 31, 2012.  The promissorynote originally constituted a revolving line-of-credit for the development ofnew restaurants which was advanced and repaid on a monthly basis from time totime.  The promissory note now constitutes a term loan with monthly payments ofprincipal and interest.  The loan is secured by separate leasehold deeds oftrust and security agreements related to six company-owned restaurants andfirst deeds of trust on two real properties funded by the line of credit. Thetotal outstanding balance on the line of credit was $2,500,000 at September 30,2009.  Of the $2,500,000 outstanding balance, $1,595,000 is related to theconstruction of one company-owned restaurant in Firestone, Colorado that openedin October 2008. The fully developed restaurant is currently being marketed inthe sale-leaseback market.  The remaining balance is related to the purchase, entitlementand other development fees on a parcel of land in Aurora, Colorado that will beeither developed into a company-owned restaurant, leased or sold.

On April 20,2009 as reported on form 8-K, Good Times Restaurants Inc. (the "Company") andGood Times Drive Thru Inc. ("GTDT"), a wholly owned subsidiary of the Company,entered into a loan agreement with Golden Bridge, LLC ("Golden Bridge"),pursuant to which Golden Bridge made a loan of $185,000 (the "Golden Bridge Loan")to GTDT to be used for restaurant marketing and other working capital costs. Eric Reinhard, Ron Goodson, David Grissen, Richard Stark, and Alan Teran, whoare all members of the Company's Board of Directors and stockholders of theCompany, are the sole members of Golden Bridge.  Eric Reinhard is the solemanager of Golden Bridge.  The Company's and GTDT's obtaining of the GoldenBridge Loan and related transactions with Golden Bridge were duly approved inadvance by the Company's Board of Directors by the affirmative vote of membersthereof who did not have an interest in the transaction.

The GoldenBridge Loan is evidenced by a promissory note dated April 20, 2009 (the "GoldenBridge Note") made by the Company and GTDT, as co-makers, and bears interest ata rate of 10% per annum on the unpaid principal balance.  The Golden BridgeNote provides for monthly interest payments and will mature and be due andpayable in full on July 10, 2010.  The commitment fee for the Golden BridgeLoan is $3,700.  The Golden Bridge Loan Agreement contains customary event ofdefault provisions and a cross-default provision with respect to the loanagreement for the PFGI II, LLC loan (as described above).

19

The GoldenBridge Loan Agreement and Note are subject to the terms of an Intercreditor Agreementdated April 20, 2009 (the "Intercreditor Agreement"), among the Company, GTDT,Golden Bridge and PFGI II, LLC ("PFGI").  As previously reported by theCompany, GTDT currently has a $2,500,000 revolving line of credit with PFGI(the "PFGI Loan"), which was scheduled to mature on July 10, 2009, under which$2,500,000 was outstanding as of April 20, 2009.  Under the IntercreditorAgreement, PFGI and Golden Bridge agreed that, upon any payments of principalor interest on the Golden Bridge Loan or the PFGI Loan by GTDT, PFGI and GoldenBridge shall each be entitled to its pro rata share of such payments in theamount of 93.1% for PFGI and 6.9% for Golden Bridge.  The IntercreditorAgreement also provides that GTDT and the Company may prepay the Golden BridgeLoan in whole or in part with the prior consent of PFGI, and that any otherindebtedness of the Company or GTDT to PFGI or Golden Bridge shall besubordinate in payment and lien priority to the Golden Bridge Loan and the PFGILoan to the extent of the proceeds of the collateral.  Under the IntercreditorAgreement, all money received from any foreclosure on the collateral securingthe PFGI Loan shall be applied to PFGI and Golden Bridge for their expensesrelated to such event and then on a pari passu basis to PFGI and Golden Bridgein accordance with their respective pro rata shares.

Prior to theclosing of the Golden Bridge Loan, borrowings under the PFGI Loan were securedby GTDT's leasehold estates and business assets with respect to certain ofGTDT's restaurants located in Boulder, Adams, Jefferson and Larimer counties inColorado and first deeds of trust on real property in Arapahoe and Weldcounties in Colorado developed under the PFGI Loan.  In connection with PFGI'sentry into the Intercreditor Agreement, GTDT and the Company entered into afirst amendment to the amended and restated promissory note dated April 20,2009 (the "PFGI Note Amendment"), which extended the maturity date of the PFGILoan until July 10, 2010 and eliminated a loan balance threshold for release ofthe collateral securing the PFGI Loan.

In connectionwith the Golden Bridge Loan, the Company issued a three-year warrant datedApril 20, 2009 (the "Warrant") to Golden Bridge which provides that GoldenBridge may at any time from April 20, 2009 until April 20, 2012 purchase up to92,500 shares of the Company's common stock (the "Warrant Shares") at anexercise price of $1.15 per share.  The number of Warrant Shares and theexercise price are subject to customary antidilution adjustments upon the occurrenceof any stock dividends, stock splits, reverse stock splits, recapitalizations,reclassifications, stock combinations or similar events. The fair value of the Warrantissued was determined to be $42,000 with the following assumptions: 1) riskfree interest rate of 1.27%, 2) an expected life of 3 years, and 3) an expecteddividend yield of zero. The fair value of $42,000 was charged to the notediscount and credited to Additional Paid in Capital. The note discount will beamortized over fourteen months and charged to interest expense.

Additional commitments for thedevelopment of new restaurants in fiscal 2010 will depend on the Company'ssales trends, cash generated from operations and our access to capital includingin the sale-leaseback markets.

**Cash Flows:** Net cash usedin operating activities was $595,000 for fiscal 2009 compared to cash providedby operating activities of $619,000 in fiscal 2008.  The decreased net cash usedin operating activities for fiscal 2009 was the result of net loss of $1,646,000and non-cash reconciling items totaling $1,051,000 (comprised principally ofdepreciation and amortization of $1,262,000, minority interest income of $54,000,$77,000 of stock option compensation expense, $87,000 related to an unrealizedloss in regards to our interest rate swap agreement, a $273,000 decrease in ourtrade accounts payable and net decreases in operating assets and liabilitiestotaling $48,000).

Net cash used in investing activities in fiscal2009 was $284,000 compared to $2,787,000 in fiscal 2008.  The fiscal 2009activity reflects payments for the purchase of property and equipment of $284,000(of which $186,000 was related to a new company-owned restaurant that opened inOctober 2008), payments received on loans to franchisees of $31,000 and $31,000for loans made to franchisees. 

Net cash provided by financing activities infiscal 2009 was $280,000 compared to $1,117,000 in fiscal 2008.  The fiscal 2009activity includes principal payments on notes payable and long term debt of $123,000,borrowings on the revolving line-of-credit and other notes payable of $505,000and distributions to minority interests in partnerships of $102,000.

**Contingencies and Off-Balance SheetArrangements:**Weremain contingently liable on various land leases underlying restaurants thatwere previously sold to franchisees.  We have never experienced any lossesrelated to these contingent lease liabilities, however if a franchisee defaultson the payments under the leases, we would be liable for the lease payments asthe assignor or sublessor of the lease.  Currently we have not been notifiednor are we aware of any leases in default under which we are contingentlyliable, however there can be no assurance that there will not be in the future,which could have a material adverse effect on our future operating results.

**Critical Accounting Policies andEstimates**

We follow accounting standards set by theFinancial Accounting Standards Board, commonly referred to as the "FASB." TheFASB sets generally accepted accounting principles (GAAP) that we follow toensure we consistently report our financial condition, results of operations, andcash flows. Over the years, the FASB and other designated GAAP-setting bodies,have issued standards in the form of FASB Statements, Interpretations, FASBStaff Positions, EITF consensuses, AICPA Statements of Position, etc. 

20

The FASB recognized the complexity of itsstandard-setting process and embarked on a revised process in 2004 thatculminated in the release on July 1, 2009, of the FASB Accounting Standards Codification,TMsometimes referred to as the Codification or ASC. To the Company, this meansinstead of following the Statements, Interpretations, Staff Positions, etc., wewill follow the guidance in Topics as defined in the ASC. The Codification doesnot change how the Company accounts for its transactions or the nature ofrelated disclosures made. However, when referring to guidance issued by theFASB, the Company refers to topics in the ASC rather than Statements, etc. Theabove change was made effective by the FASB for periods ending on or afterSeptember 15, 2009. We have updated references to GAAP in this Annual Report onForm 10-K to reflect the guidance in the Codification. 

**Notes Receivable:** We evaluatethe collectability of our note receivables from franchisees annually. Historically, such amounts have been fully repaid and we believe the collateraland guarantees are adequate to provide for future payments; therefore noallowances for amounts estimated to be uncollectable have been provided.

**Impairment of Long-Lived Assets:** We review ourlong-lived assets for impairment in accordance with the guidance of FASB ASC360-10, *Property, Plant, and Equipment*, including land, property andequipment whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable. Recoverability of assets tobe held and used is measured by a comparison of the capitalized costs of theassets to the future undiscounted net cash flows expected to be generated bythe assets and the expected cash flows are based on recent historical cashflows at the restaurant level (the lowest level that cash flows can bedetermined).

An analysiswas performed on a restaurant by restaurant basis at September 30, 2009.Assumptions used in preparing expected cash flows were as follows: 

•        Salesprojections are as follows: Fiscal 2010 sales are projected flat with respectto fiscal 2009, for fiscal years 2011 to 2024 we have used annual increases of2% to 3%. We believe the 2% to 3% increase in the years beyond 2010 is areasonable expectation of growth and that it would be unreasonable to expectless growth in our sales. These increases include menu price increases inaddition to any real growth. Historically our weighted menu prices haveincreased 1.5% to 6% per year.

•        Ourvariable and semi-variable restaurant operating costs are projected to increaseproportionately with the sales increases as well as increasing an additional1.5% per year consistent with inflation.

•        Ourother fixed restaurant operating costs are projected to increase 1.5% to 2% peryear.

•        Foodand packaging costs are projected to remain flat in relation to our currentfiscal 2009 food and packaging costs as a percentage of sales.

•        Salvagevalue has been estimated on a restaurant by restaurant basis considering eachrestaurant's particular equipment package and building size.

Given theresults of our impairment analysis at September 30, 2009 there are norestaurants which have potential impairment as their projected undiscountedcash flows show recoverability of their asset values.

Our impairmentanalysis included a sensitivity analysis with regard to the cash flowprojections that determine the recoverability of each restaurant's assets. Theresults indicate that even with a 20% decline in our projected cash flows wewould still not have any potential impairment issues.  We have experiencedhigher than normal food and packaging costs as a percentage of restaurant salesin recent years and we do not believe these costs will remain at these levelsin future years. However for purposes of our cash flow projections in the assetimpairment analysis we have assumed our food and packaging costs will remain atthese higher levels.

Each time weconduct an impairment analysis in the future we will compare actual results toour projections and assumptions, and to the extent our actual results do notmeet expectations, we will revise our assumptions and this could result inimpairment charges being recognized.

All of thejudgments and assumptions made in preparing the cash flow projections areconsistent with our other financial statement calculations and disclosures. Theassumptions used in the cash flow projections are consistent with otherforward-looking information prepared by the Company, such as those used forinternal budgets, discussions with third parties, and/or reporting tomanagement or the Board of Directors.

To date we have not written down any assets due toimpairment, however projecting the cash flows for the impairment analysisinvolves significant estimates with regard to the performance of eachrestaurant, and it is reasonably possible that the estimates of cash flows maychange in the near term resulting in the need to write down operating assets tofair value. If the assets are determined to be impaired, the amount ofimpairment recognized is the amount by which the carrying amount of the assetsexceeds their fair value. Fair value would be determined using forecasted cashflows discounted using an estimated average cost of capital and the impairmentcharge would be recognized in income from operations.

21

**Income Taxes:**We account forincome taxes in accordance with FASB ASC 740, *Income Taxes*. FASB ASC 740prescribes the use of the liability method whereby deferred tax asset andliability accountbalancesare determined based on differences between the financial reporting and taxbases of assetsandliabilities and are measured using the enacted tax rates and laws that will bein effect when thedifferencesare expected to reverse. The Company provides a valuation allowance, ifnecessary, toreducedeferred tax assets to their estimated realizable value. The deferredtax assets are reviewed periodically for recoverability, and valuationallowances are adjusted as necessary.  We believe it is more likely than notthat the recorded deferred tax assets will be realized.

**Variable Interest Entities**: We analyzeany potential Variable Interest or Special-Purpose Entities in accordance withthe guidance ofFASB ASC 810-10, *Consolidation of Variable Interest and Special-PurposeEntities.*Once an entity is determined to be a Variable Interest Entity(VIE), the party with the controlling financial interest, the primarybeneficiary, is required to consolidate it.  We have several franchisees withnotes payable to the Company and after analysis we have determined that, whilethese franchisees are VIE's as defined by FASB ASC 810-10, we are not theprimary beneficiary of the entities, and therefore they are not required to beconsolidated.

**Fair Value of Financial Instruments**: We adoptedthe provisions of FASB ASC 820, *Fair Value Measurements and Disclosures*,effective October 1, 2008. FASB ASC 820 defines fair value, establishes aframework for measuring fair value under GAAP and enhances disclosure aboutfair value measurements. The adoption of this guidance did not have a materialimpact on either our financial position or results of operations.

**New Accounting Pronouncements:** In June 2008,the FASB issued FASB ASC 815-40, *Derivatives and Hedging*, that providesguidance on how to determine if certain instruments (or embedded features) areconsidered indexed to a company's own stock, including instruments similar towarrants to purchase the company's stock. FASB ASC 815-40 requires companies touse a two-step approach to evaluate an instrument's contingent exerciseprovisions and settlement provisions in determining whether the instrument isconsidered to be indexed to its own stock and therefore exempt from theapplication of FASB ASC 815 Although FASB ASC 815-40 is effective for fiscalyears beginning after December 15, 2008, any outstanding instrument at the dateof adoption will require a retrospective application of the accounting througha cumulative effect adjustment to retained earnings upon adoption. The Companydoes not expect the adoption of this guidance to have a material impact oneither its financial position or results of operations.

In December 2007, the FASB issued FASB ASC 805, *BusinessCombinations*, which establishes principles and requirements for how anacquiring entity in a business combination recognizes and measures the assetsacquired and liabilities assumed in the transaction; establishes theacquisition-date fair value as the measurement objective for all assetsacquired and liabilities assumed; and sets the disclosure requirementsregarding the information needed to evaluate and understand the nature andfinancial effect of the business combination.  This accounting pronouncement iseffective for fiscal years beginning after December 15, 2008, which willeffective for our fiscal year beginning October 1, 2009.  The requirements ofFAS 141 will only impact future business combination transactions into which wemay enter.

In December 2007, the FASB issued FASB ASC 810-10,*Consolidation*, which prescribes the accounting by a parent company forminority interests held by other parties in a subsidiary of the parentcompany.  FAS ASC 810-10 is effective for fiscal years beginning after December15, 2008, which will be effective for our fiscal year beginning October 1,2009.  We are currently evaluating the requirements of FAS ASC 810-10 and havenot yet determined the impact on our financial statements.

**Subsequent Events:** In December,2009 the Company entered into an agreement to amend the PFGI II Loan.  Thematurity date was extended to December 31, 2012, the interest rate wasincreased to 8.65% and monthly payments of principal and interest will bepayable beginning January 31, 2010, based upon a 25 year amortization prior tomaturity.  In connection with the agreement the Company also agreed to issue$125,000 of warrants exercisable at the average market price during the twentydays prior to January 2, 2010.  

Subsequent events have been evaluated throughDecember 28, 2009, the date the consolidated financial statements wereavailable to be issued.

**Pre-approval of non-audit services:** On October26, 2009, the Audit Committee of the Board of Directors of Good TimesRestaurants Inc. approved in advance certain non-audit services to be performedby Hein & Associates, Good Times' independent auditor.  These non-auditservices are to consist primarily of corporate income tax compliance services.

**Item 7A.         Quantitative andQualitative Disclosures about Market Risk.**

Not applicable.

22

**Item 8.          FinancialStatements and Supplementary Data.**

INDEX TOFINANCIAL STATEMENTS

PAGE

Report  of Independent Registered Public Accounting Firm

F-2

Consolidated  Balance Sheet - September 30, 2009 and 2008

F-3

Consolidated  Statements of Operations - For the Years Ended September 30, 2009 and 2008

F-4

Consolidated  Statements of Stockholders' Equity - For the Period from October 1, 2007

through  September 30, 2009

F-5

Consolidated  Statements of Cash Flows - For the Years Ended September 30, 2009 and 2008

F-6

Notes  to Consolidated Financial Statements

F-7

F-1

REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and

Board of Directors

Good Times Restaurants, Inc.

Golden, Colorado

We have audited the accompanyingconsolidated balance sheet of Good Times Restaurants, Inc. and Subsidiary as ofSeptember 30, 2009 and 2008, and the related consolidated statements ofoperations, stockholders' equity, comprehensive income and cash flows for theyears ended September 30, 2009 and 2008. These consolidated financialstatements are the responsibility of the Company's management. Ourresponsibility is to express an opinion on these consolidated financialstatements based on our audits. 

We conducted our audits in accordancewith the standards of the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements arefree of material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion. 

In our opinion, the consolidatedfinancial statements referred to above present fairly, in all materialrespects, the financial position of Good Times Restaurants, Inc. and Subsidiaryas of September 30, 2009, and the results of their operations and their cashflows for the years ended September 30, 2009 and 2008, in conformity with U.S.Generally Accepted Accounting Principles. 

The accompanying financial statementshave been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company remains out ofcompliance with certain debt covenants, and has suffered recurring losses fromoperations.  These facts raise substantial doubt about the Company's ability tocontinue as a going concern.  Management's plans in regard to these matters,including its plans to pursue additional sources of funding, are also describedin Note 2.  The financial statements do not include any adjustments that mightresult from the outcome of this uncertainty.

We were not engaged to examinemanagement's assertion about the effectiveness of Good Times Restaurants, Inc'sinternal control over financial reporting as of September 30, 2009 included inthe accompanying Management's Annual Report on Internal Control Over FinancialReporting included in Item 9A, and, accordingly, we do not express an opinionthereon.

HEIN & ASSOCIATES LLP 

Denver, Colorado

December 28, 2009

F-2

F-3

GOOD TIMESRESTAURANTS INC. AND SUBSIDIARY

CONSOLIDATEDBALANCE SHEET

 
September 30,

2009

2008

ASSETS

Current Assets:

        Cash  and cash equivalents

$  815,000

$     1,414,000

        Receivables,  net of allowance for doubtful

accounts of $0

122,000

160,000

        Prepaid  expenses and other

32,000

79,000

        Inventories

220,000

240,000

        Notes  receivable

          36,000

 

       35,000

              Total  current assets

1,225,000

1,928,000

Property and Equipment:

        Land  and building

6,596,000

6,566,000

        Leasehold  improvements

4,107,000

4,017,000

        Fixtures  and equipment

        8,438,000

 

       8,303,000

19,141,000

18,886,000

        Less accumulated  depreciation and amortization

      (11,853,000)

(10,602,000)

7,288,000

8,284,000
                                                                                              Assets held for sale      1,595,000                          
1,574,000

Other Assets:
                                              
        Notes  receivable, net of current portion

82,000

83,000

        Deposits  and other assets

            64,000

              51,000

          146,000

            134,000

Total Assets

$       10,254,000

$     11,920,000

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

        Current maturities of  long-term debt, net of discount of $27,000 and         $0, respectively

$       1,027,000

$      2,304,000

        Accounts  payable

355,000

628,000

        Deferred  income

113,000

139,000

        Other  accrued liabilities

          930,000

        939,000

                Total  current liabilities

2,425,000

4,010,000
                         Long-Term Liabilities:                                                         
        Debt,  net of current portion and net of discount of $35,000 and $0, respectively

2,478,000

846,000

        Deferred  liabilities

          973,000

        1,071,000

                Total  long-term liabilities

3,451,000

1,917,000

Minority Interests in Partnerships

428,000

584,000
                         Commitments and Contingencies   (Notes 4 and 6)                         Stockholders' Equity:                         Preferred stock, $.01 par value;                                         5,000,000 shares authorized, none issued                                         and outstanding as of September 30, 2008  and 2009
                          -

        -
                         Common stock, $.001 par value; 50,000,000 shares                                         Authorized, 3,898,559 shares issued and                                         outstanding as of September 30, 2008 and  2009
4,000

4,000

                Accumulated  other comprehensive loss

                            -

(68,000)

              Capital  contributed in excess of par value

              17,751,000

        17,632,000

              Accumulated  deficit

            (13,805,000)

    (12,159,000)

                        Total  stockholders' equity

                 3,950,000

        5,409,000
                         Total Liabilities and Stockholders' Equity
$             10,254,000

$      11,920,000
  
***Seeaccompanying notes to these consolidated financial statements.***

F-4

GOOD TIMESRESTAURANTS INC. AND SUBSIDIARY

CONSOLIDATEDSTATEMENTS OF OPERATIONS

For the Years Ended

September 30,

2009

2008

Net Revenues:

Restaurant sales

$   23,213,000

$   25,244,000

Area development and franchise fees

13,000

-

Franchise royalties 

        523,000

     638,000

Total  net revenues

23,749,000

25,882,000

Restaurant Operating Costs:

Food and packaging costs

7,816,000

8,002,000

Payroll and other employee benefit  costs

8,138,000

8,780,000

Restaurant occupancy costs

3,756,000

3,714,000

Accretion of deferred rent

1,000

33,000

Other restaurant operating costs

1,120,000

1,134,000

New store pre-opening costs

15,000

38,000

Depreciation and amortization

     1,262,000

 

     1,283,000

Total  restaurant operating costs

   22,108,000

     22,984,000

General and administrative costs

1,568,000

2,042,000

Advertising costs

1,292,000

1,525,000

Franchise costs

161,000

312,000

Gain on disposal of restaurants and  equipment

     (28,000)

 

     (35,000)

Loss From  Operations

(1,352,000)

     (946,000)

Other Income (Expenses):

Interest income

16,000

67,000

Interest expense

(277,000)

(80,000)

Unrealized loss on interest rate  swap

(87,000)

-

Minority interest in income of  partnerships

     54,000

     (113,000)

Total  other expenses, net

(294,000)

(126,000)

Net Loss before Income Taxes

(1,646,000)

     (1,072,000)

         Income Tax Expense

-

4,000

Net Loss

($1,646,000)

     ($1,076,000)

Basic and Diluted Loss per Share

($0.42)

($0.28)

Weighted Average Common Shares Outstanding:

Basic

3,898,559

3,886,730

Diluted

n/a

n/a

***Seeaccompanying notes to these consolidated financial statements.***

F-5

GOOD TIMESRESTAURANTS INC. AND SUBSIDIARY

CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE PERIODFROM OCTOBER 1, 2007 THROUGH SEPTEMBER 30, 2009

Preferred  Stock

Common Stock

Issued

Shares

Par

Value

Issued

Shares

Par

Value

Capital  Contributed in Excess of Par Value

Accumulated  Deficit

Accumulated  Other Comprehensive Loss

Comprehensive  Income

Total

Balances,  October 1, 2007

              -

$          0

3,866,896

$     4,000

$17,438,000

$(11,083,000)

$    (26,000)

$        3,000

$  6,333,000

Stock option  compensation cost

90,000

90,000

Stock issued  for exercised stock options

31,663

104,000

104,000

Comprehensive  Loss

    Net  Income

(1,076,000)

(1,076,000)

(1,076,000)

    Deferred  hedging losses

(42,000)

(42,000)

          Comprehensive  loss

              

            

               

             

                   

                   

                    

(42,000)

              

Balances, September 30, 2008

              -

$          0

3,898,559

$     4,000

$17,632,000

$  (12,159,000)

$    (68,000)

$(1,115,000)

$  5,409,000

Stock option  compensation cost

77,000

77,000

Value of  warrants issued with debt

42,000

42,000

Comprehensive(Loss

    Net Loss

(1,646,000)

(1,646,000)

(1,646,000)

          Deferred  hedging losses

              

            

               

             

                   

                   

          68,000

 

        68,000

Balances,  September 30, 2009

              -

$          0

3,898,559

$     4,000

$17,751,000

$(13,805,000)

$                0

$(2,761,000)

$  3,950,000

***Seeaccompanying notes to these consolidated financial statements.***

F-5

GOOD TIMESRESTAURANTS INC. AND SUBSIDIARY

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

For the Years Ended

September 30,

2009

2008

Cash Flows from Operating  Activities:

Net Loss

$    (1,646,000)

$  (1,076,000)

Adjustments  to reconcile net income (loss) to net cash provided by  operating activities:

Depreciation and amortization

1,262,000

1,283,000

Note discount amortization

15,000

-

Accretion of deferred rent

1,000

33,000

Minority interest expense (income)

(54,000)

113,000

Gain on  disposal of property, restaurants and equipment

(28,000)

(35,000)

Stock option  compensation cost

77,000

90,000

Expenses  associated with exit activity

-

95,000

Unrealized  loss on interest rate swap agreement

87,000

-

Changes in  operating assets and liabilities:

(Increase)  decrease in:

Receivables

38,000

42,000

Inventories

 20,000

(35,000)

Prepaid expenses and other

47,000

(40,000)

Deposits and other assets

16,000

(3,000)

(Decrease)  increase in:

Accounts payable

(273,000)

232,000

Accrued and other liabilities

(157,000)

(90,000)

Deferred franchise fees

                  -

 

            10,000

Net cash provided by (used in) operating  activities

    (595,000)

 

          619,000

Cash Flows From Investing Activities:

Payments for  the purchase of property and equipment 

(284,000)

(3,282,000)

 Proceeds  from the sale of assets

-

747,000

 Purchase of  franchisee

-

(272,000)

 Loans made  to franchisees and to others

(31,000)

(54,000)

 Payments  received on loans to franchisees and to others

        31,000

 

        74,000

Net cash used in investing  activities

      (284,000)

    (2,787,000)

 Cash Flows From Financing Activities:

Principal  payments on notes payable, capital leases, and long‐term debt

(123,000)

(870,000)

Borrowings on  notes payable and long-term debt

185,000

2,180,000

Proceeds from  exercise of stock options

-

104,000

Net proceeds  on line-of-credit

320,000

-

Distributions(net  of contributions) paid to minority interests in partnerships

      (102,000)

      (297,000)

Net cash provided by financing  activities

      280,000

 

      1,117,000

Net Change in Cash and Cash Equivalents

(599,000)

(1,051,000)

Cash and Cash Equivalents, beginning of year

    1,414,000

 

      2,465,000

Cash and Cash Equivalents, end of year

$    815,000

 

$    1,414,000

Supplemental Disclosures of Cash Flow Information:

Cash paid for  interest

$    299,000

 

$      111,000

Non-cash acquisition price of  franchise store (notes receivable)

$                -

 

$      250,000

Non-cash deferred hedging losses

$                -

 

$        42,000

Non-cash fair value of warrants

$      42,000

 

$                  -

***Seeaccompanying notes to these consolidated financial statements.***

F-7

Notes to Consolidated Financial statements

1.     Organization and Summary of Significant Accounting Policies:

Organization - Good TimesRestaurants Inc. (Good Times or the Company) is a Nevada corporation. TheCompany operates through its wholly owned subsidiary Good Times Drive Thru Inc.(Drive Thru).

Drive Thru commenced operations in 1986 and, as ofSeptember 30, 2009, operates thirty company-owned and joint venturedrive-thru fast food hamburger restaurants.  The Company's restaurants arelocated in Colorado. In addition, Drive Thru has twenty-two franchises, eighteenoperating in Colorado, two in Wyoming, one in Idaho and one in North Dakota,and is offering franchises for development of additional Drive Thrurestaurants.

We follow accounting standards set by theFinancial Accounting Standards Board, commonly referred to as the "FASB". TheFASB sets generally accepted accounting principles (GAAP) that we follow toensure we consistently report our financial condition, results of operationsand cash flows. References to GAAP issued by the FASB in these footnotes are tothe *FASB Accounting Standards CodificationTM,*sometimes referred to asthe Codification or ASC. The FASB finalized the Codification effective forperiods ending on or after September 15, 2009. For further discussion of theCodification see "FASB Codification Discussion" in Management's Discussion andAnalysis of Financial Condition and Results of Operations (commonly referred toas MD&A) elsewhere in this report.

Principles of Consolidation - Theconsolidated financial statements include the accounts of Good Times, itssubsidiary and two limited partnerships, in which the Company exercises controlas general partner.  The Company owns an approximate 51% interest in bothpartnerships, is the sole general partner and receives a management fee priorto any distributions to the limited partners.  Because the Company owns anapproximate 51% interest in the partnerships and exercises complete managementcontrol over all decisions for the partnerships, except for certain vetorights, the financial statements of the partnerships are consolidated into theCompany's financial statements.  The equity interests of the unrelated limitedpartners are shown on the accompanying consolidated balance sheet as minorityinterest, and the limited partners' shares of net income in the partnerships isshown as minority interest expense in the accompanying consolidated statementof operations. All inter-company accounts and transactions are eliminated.

Accounting Estimates - Thepreparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles requires management to make estimates andassumptions that affect the amounts reported in these consolidated financialstatements and the accompanying notes.  Actual results could differ from thoseestimates.

Reclassification - Certain prioryear balances have been reclassified to conform to the current year'spresentation.  Such reclassifications had no effect on the net income or loss.

Cash and Cash Equivalents - The Companyconsiders all highly liquid debt instruments purchased with an initial maturityof three months or less to be cash equivalents.

Accounts Receivable - Accountsreceivable include uncollateralized receivables from our franchisees and ouradvertising fund, due in the normal course of business, generally requiringpayment within thirty days of the invoice date. On a periodic basis the Companymonitors all accounts for delinquency and provides for estimated losses ofuncollectible accounts. Currently and historically there have been no allowancesfor unrecoverable accounts receivable.

Inventories - Inventoriesare stated at the lower of cost or market, determined by the first-in,first-out method, and consist of restaurant food items and related packagingsupplies.

Property and Equipment -Depreciation is recognized using the straight-line method over the estimateduseful lives of the assets or the lives of the related leases, if shorter, asfollows:

Buildings

15 years

Leasehold improvements

7-15 years

Fixtures and equipment

3-8 years

Maintenance and repairs are charged toexpense as incurred, and expenditures for major improvements are capitalized. When assets are retired, or otherwise disposed of, the property accounts arerelieved of costs and accumulated depreciation with any resulting gain or losscredited or charged to income.

We have classified $1,595,000 asassets held for sale in the accompanying consolidated balance sheet. Thesecosts are related to a site in Firestone, Colorado which has been fullydeveloped.  The restaurant is being marketed for sale and leaseback.  Theproceeds of a sale leaseback transaction, if consummated, are required to beused for the reduction of the line of credit payable to PFGI II, LLC. Theeffect on our operating cash flow is not material as the interest expense onthe line of credit is approximately equal to the proposed rental rate on saleand leaseback transaction.

F-8

Impairment of Long-Lived Assets - We review ourlong-lived assets for impairment in accordance with the guidance of FASB ASC360-10, Property, Plant, and Equipment, including land, property and equipmentwhenever events or changes in circumstances indicate that the carrying amountof an asset may not be recoverable. Recoverability of assets to be held andused is measured by a comparison of the capitalized costs of the assets to thefuture undiscounted net cash flows expected to be generated by the assets andthe expected cash flows are based on recent historical cash flows at therestaurant level (the lowest level that cash flows can be determined).

An analysis was performed on arestaurant by restaurant basis at September 30, 2009. Assumptions used inpreparing expected cash flows were as follows: 

•        Salesprojections are as follows: Fiscal 2010 sales are projected flat with respectto fiscal 2009, for fiscal years 2011 to 2024 we have used annual increases of2% to 3%. We believe the 2% to 3% increase in the years beyond 2010 is areasonable expectation of growth and that it would be unreasonable to expect nogrowth in our sales. These increases include menu price increases in additionto any real growth. Historically our weighted menu prices have increased 1.5%to 6%.

•        Ourvariable and semi-variable restaurant operating costs are projected to increaseproportionately with the sales increases as well as increasing an additional1.5% per year consistent with inflation.

•        Ourother fixed restaurant operating costs are projected to increase 1.5% to 2% peryear.

•        Foodand packaging costs are projected to remain flat in relation to our currentfiscal 2009 food and packaging costs as a percentage of sales. 

•        Salvagevalue has been estimated on a restaurant by restaurant basis considering eachrestaurant's particular equipment package and building size.

Given the results of our impairmentanalysis at September 30, 2009 there are no restaurants which are impaired astheir projected undiscounted cash flows show recoverability of their assetvalues.

Our impairment analysis included asensitivity analysis with regard to the cash flow projections that determinethe recoverability of each restaurant's assets. The results indicate that evenwith a 20% decline in our projected cash flows we would still not have anypotential impairment issues.  However if we elect to sublease, close orotherwise exit a restaurant location impairment could be required. We haveexperienced higher than normal food and packaging costs as a percentage ofrestaurant sales in recent years and we do not believe these costs will remainat these levels in future years. However for purposes of our cash flowprojections in the asset impairment analysis we have assumed our food andpackaging costs will remain at these higher levels.

Each time we conduct an impairmentanalysis in the future we will compare actual results to our projections and assumptions,and to the extent our actual results do not meet expectations, we will reviseour assumptions and this could result in impairment charges being recognized.

All of the judgments and assumptionsmade in preparing the cash flow projections are consistent with our otherfinancial statement calculations and disclosures. The assumptions used in thecash flow projections are consistent with other forward-looking informationprepared by the company, such as those used for internal budgets, discussions withthird parties, and/or reporting to management or the board of directors.

To date we have not written down anyassets due to impairment, however projecting the cash flows for the impairmentanalysis involves significant estimates with regard to the performance of eachrestaurant, and it is reasonably possible that the estimates of cash flows maychange in the near term resulting in the need to write down operating assets tofair value. If the assets are determined to be impaired, the amount ofimpairment recognized is the amount by which the carrying amount of the assetsexceeds their fair value. Fair value would be determined using forecasted cashflows discounted using an estimated average cost of capital and the impairmentcharge would be recognized in income from operations.

Sales of Restaurants and RestaurantEquity Interests- Sales of restaurants or non-controlling equity interests in restaurantsdeveloped by the Company are recorded under either the full accrual method orthe installment method of accounting.  Under the full accrual method, a gain isnot recognized until the collectability of the sales price is reasonablyassured and the earnings process is virtually complete without furthercontingencies.  When a sale does not meet the requirements for incomerecognition, the related gain is deferred until those requirements are met. Under the installment method, the gain is incrementally recognized as principalpayments on the related notes receivable are collected.  The Company'saccounting policy, with regards to the sale of restaurants, is in accordancewith the guidance of FASB ASC 360-10, Property, Plant, and Equipment.  If theinitial payment is less than the percentages set forth, use of the installmentmethod is required.  

F-9

The Company's accounting for the saleof restaurants is also in accordance with FASB ASC 810-20, Consolidation ofVariable Interest and Special-Purpose Entities, because the risks and otherincidents of ownership have been transferred to the buyer.  Specifically, a) nocontinuing involvement by the Company exists in restaurants that are sold, b)sales contracts and related income recognition are not dependant on the futuresuccessful operations of the sold restaurants, and c) the Company is notinvolved as a guarantor on the purchasers' debts.

Deferred Liabilities - Rentexpense is reflected on a straight-line basis over the term of the lease forall leases containing step-ups in base rent.  An obligation representing futurepayments (which totaled $551,000 as of September 30, 2009) is reflected inthe accompanying consolidated balance sheet as a deferred liability.  Alsoincluded in the $973,000 deferred and other liability balance is a $422,000deferred gain on the sale of the building and improvements of two Company-ownedrestaurants in two separate sale leaseback transactions.  The building andimprovements were subsequently leased back from the third party purchasers. Thegains will be recognized in future periods in proportion to the rents paid onthe fifteen and twenty year leases.

Opening Costs - Openingcosts are expensed as incurred.

Advertising - The Companyincurs advertising expenses in connection with the marketing of its restaurantoperations.  Advertising costs are expensed when the related advertisingbegins.

Franchise and Area Development Fees - Individualfranchise fee revenue is deferred when received and is recognized as incomewhen the Company has substantially performed all of its obligations under thefranchise agreement and the franchisee has commenced operations.  The Company'scommitments and obligations pursuant to the franchise agreements consist of a)development assistance; including site selection, building specifications andequipment purchasing and b) operating assistance; including training of personneland preparation and distribution of manuals and operating materials.  All ofthese obligations are effectively complete upon the opening of the restaurantat which time the franchise fee and the portion of any development feeallocable to that restaurant is recognized.  There are no additional materialcommitments or obligations.

The Company has not recognized anyfranchise fees that have not been collected.  The Company segregates initialfranchise fees from other franchise revenue in the statement of operations. Revenues and costs related to company-owned restaurants are segregated fromrevenues and costs related to franchised restaurants in the statement ofoperations.

Continuing royalties from franchisees,which are a percentage of the gross sales of franchised operations, arerecognized as income when earned.  Franchise development expenses, whichconsist primarily of legal costs and restaurant opening expenses associatedwith developing and opening franchise restaurants, are expensed against therelated franchise fee income.

Accounting for Notes Receivable - TheCompany's notes receivables are all due from Good Times franchisees, orfranchise advertising cooperatives. All of the notes receivable arecollateralized by real estate or equipment and certain of the notes arepersonally guaranteed by the franchisees. The notes are all term notes withinterest accruing at market rates. The Company reviews the notes from time totime to access collectability. The Company has determined that all notes receivableat September 30, 2009 are collectable and allowances for write-downs are notnecessary.

Operating Partner Program - OperatingPartners in a restaurant share in future increases of their restaurant's cashflows above an established baseline, which is based on the preceding twelvemonths' cash flow after full allocation of advertising and capital expenses. This program is designed to figuratively put Operating Partners in the shoes ofan owner so that a portion of their compensation is derived solely from theimprovement in the financial performance of their respective restaurants.  Theportion of cash flow increases allocable to the Operating Partners are expensedas incurred on a quarterly basis, with a cumulative adjustment made for anymonths where cash flows fall below the established baselines. Compensationunder this program is expensed to restaurant operations as incurred.  No otherlong term benefits accrue or vest to the Operating Partners in this program. Operating Partners are employees at will and are subject to termination fromthis program if certain operating, customer service and financial objectivesare not met.

Income Taxes - We accountfor income taxes in accordance with FASB ASC 740, Income Taxes. FASB ASC 740prescribes the use of the liability method whereby deferred tax asset andliability account balances are determined based on differences between thefinancial reporting and tax bases of assets and liabilities and are measuredusing the enacted tax rates and laws that will be in effect when the differencesare expected to reverse. The Company provides a valuation allowance, ifnecessary, to reduce deferred tax assets to their estimated realizable value.

F-10

Net Income (Loss) Per Common Share - The income(loss) per share is presented in accordance with the guidance of FASB ASC260-10, Earnings per Share (EPS).  Basic EPS is calculated by dividing theincome (loss) available to common stockholders by the weighted average numberof common shares outstanding for the period.  Diluted EPS reflects thepotential dilution that could occur if securities or other contracts to issuecommon stock were exercised or converted into common stock. Options for 9,953shares of common stock were not included in computing diluted EPS for 2009because their effects were anti-dilutive. Options for 81,364 shares of commonstock were included in computing diluted EPS for 2008 because they weredilutive. 

Financial Instruments andConcentrations of Credit Risk - Credit risk represents theaccounting loss that would be recognized at the reporting date ifcounterparties failed completely to perform as contracted.  Concentrations ofcredit risk (whether on or off balance sheet) that arise from financialinstruments exist for groups of customers or counterparties when they havesimilar economic characteristics that would cause their ability to meetcontractual obligations to be similarly effected by changes in economic orother conditions.  Financial instruments with off-balance-sheet risk to theCompany include lease liabilities whereby the Company is contingently liable asa guarantor of certain leases that were assigned to third parties in connectionwith various sales of restaurants to franchisees (see Note 6).  

Financial instruments potentiallysubjecting the Company to concentrations of credit risk consist principally ofreceivables.  At September 30, 2009, notes receivable totaled $118,000 and aredue from four entities.  Additionally, the Company has other currentreceivables totaling $122,000, which includes $72,000 of franchise receivables.

The Company purchases 100% of itsrestaurant food and paper from one vendor. The Company believes a sufficientnumber of other suppliers exist from which food and paper could be purchased toprevent any long-term, adverse consequences.  

The Company operates in one industrysegment, restaurants.  A geographic concentration exists because the Company'scustomers are generally located in the State of Colorado. 

Comprehensive Income (Loss) - Comprehensiveincome includes net income or loss, changes in certain assets and liabilitiesthat are reported directly in equity such as adjustments resulting fromunrealized gains or losses on held-to-maturity investments and certain hedgingtransactions. 

In May 2007, the Company entered intoan interest rate swap agreement, designated as a cash flow hedge, which hedgesthe Company's exposure to interest rate fluctuations on the Company's floatingrate $1,100,000 term loan. In fiscal 2008 The Company recorded the fair valueof these contracts in the balance sheet, with the offset to other comprehensiveloss. In fiscal 2009 the fair value has been recognized in current earnings dueto the technical covenant defaults that exist with the underlying Wells FargoBank loan. The contract requires monthly settlements of the difference betweenthe amounts to be received and paid under the agreement, the amount of which isrecognized in current earnings as interest expense. See Note 4 for additionalinformation.

Stock-Based Compensation - Stock-basedcompensation is presented in accordance with the guidance of FASB ASC718-10-30, Compensation - Stock Compensation. Underthe provisions of FASB ASC 718, stock-based compensation is measured at thegrant date, based on the calculated fair value of the award, and is recognizedas an expense over the requisite employee service period (generally the vestingperiod of the grant). See Note 10 for additional information.

Variable Interest Entities - FASB ASC810-20, Consolidation of Variable Interest and Special-Purpose Entities, canrequire consolidation of "variable interest entities" (VIEs).  Once an entityis determined to be a VIE, the party with the controlling financial interest,the primary beneficiary, is required to consolidate it.  The Company has severalfranchisees with notes payable to the Company.  These franchisees are VIE's asdefined by FASB ASC 810-20, however, the Company is not the primary beneficiaryof these entities.  Therefore they are not required to be consolidated underthe guidance of FASB ASC 810-20.

         Fair Value of FinancialInstruments - The Company adopted the provisions of FASB ASC 820, FairValue Measurements and Disclosures, effective October 1, 2008. FASB ASC 820defines fair value, establishes a framework for measuring fair value undergenerally accepted accounting principles and enhances disclosures about fairvalue measurements. See Note 11 for additional information.

Fair value is defined as the pricethat would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date.Valuation techniques used to measure fair value, as required by Topic 820 ofthe FASB ASC, must maximize the use of observable inputs and minimize the useof unobservable inputs.

FASB ASC 820 defines three levels ofinputs that may be used to measure fair value and requires that the assets orliabilities carried at fair value be disclosed by the input level under whichthey were valued. The input levels defined under FASB ASC 820 are as follows:

Level 1: Quoted market prices inactive markets for identical assets and liabilities.

F-11

Level 2: Observable inputs other thandefined in Level 1, such as quoted prices for similar assets or liabilities;quoted prices in markets that are not active; or other inputs that areobservable or can be corroborated by observable market data for substantiallythe full term of the assets or liabilities.

Level 3: Unobservable inputs that arenot corroborated by observable market data.

Recent Accounting Pronouncements- In June 2009, the FASBissued FASB ASC 105, Generally Accepted Accounting Principles, which establishesthe FASB Accounting Standards Codification as the sole source of authoritativegenerally accepted accounting principles. Pursuant to the provisions of FASBASC 105, the Company has updated references to GAAP in its financial statementsissued for the period ended September 30, 2009. The adoption of FASB ASC 105did not impact the Company's financial position or results of operations.

         In June 2008, the FASB issuedFASB ASC 815-40, Derivatives and Hedging , that provides guidance on how todetermine if certain instruments (or embedded features) are considered indexedto a company's own stock, including instruments similar to warrants to purchasethe company's stock. FASB ASC 815-40 requires companies to use a two-stepapproach to evaluate an instrument's contingent exercise provisions andsettlement provisions in determining whether the instrument is considered to beindexed to its own stock and therefore exempt from the application of FASB ASC815 Although FASB ASC 815-40 is effective for fiscal years beginning afterDecember 15, 2008, any outstanding instrument at the date of adoption willrequire a retrospective application of the accounting through a cumulativeeffect adjustment to retained earnings upon adoption. The Company does notexpect the adoption of this guidance to have a material impact on either itsfinancial position or results of operations.

In December 2007, the FASB issued FASBASC 805, Business Combinations, which establishes principles and requirementsfor how an acquiring entity in a business combination recognizes and measuresthe assets acquired and liabilities assumed in the transaction; establishes theacquisition-date fair value as the measurement objective for all assetsacquired and liabilities assumed; and sets the disclosure requirementsregarding the information needed to evaluate and understand the nature andfinancial effect of the business combination.  This accounting pronouncement iseffective for fiscal years beginning after December 15, 2008, which willeffective for our fiscal year beginning October 1, 2009.  The requirements ofFAS 141 will only impact future business combination transactions into which wemay enter.

In December 2007, the FASB issued FASBASC 810-10, *Consolidation*, which prescribes the accounting by a parentcompany for minority interests held by other parties in a subsidiary of theparent company.  FAS ASC 810-10 is effective for fiscal years beginning afterDecember 15, 2008, which will be effective for our fiscal year beginningOctober 1, 2009.  We are currently evaluating the requirements of FAS ASC810-10 and have not yet determined the impact on our financial statements.

2.     Liquidity:

As of September 30, 2009, we had$815,000 in cash and cash equivalents on hand.  We currently plan to use thecash balance and any cash generated from operations for our working capitalneeds in fiscal 2010.  We anticipate that we will require additional workingcapital of $300,000 to $500,000 during January through April, 2010 and we arepursuing additional sources of funding to increase our working capital.   Weare pursuing rent concessions from several of our landlords and anticipateimproved income from operations of $75,000 - $100,000 from those transactionsin fiscal 2010. If circumstances require we may contemplate the sale orsublease of selected underperforming restaurants in fiscal 2010.  In April,2009 we extended the maturity of our $2,500,000 line of credit with PFGI II,LLC to July, 2010 and have further extended the maturity to December 31, 2012as described below (see "Financing Transactions" below).  

As of September 30, 2009, we had aworking capital deficit of $1,200,000 due primarily to the entire note payableto Wells Fargo Bank, N.A. of $846,000 shown as a current liability due tocertain loan covenant defaults that existed as of September 30, 2009. We arenot in payment default under the note and anticipate remaining current on allprincipal and interest payments in fiscal 2010, subject to our successfullyraising additional operating capital.  We have received a Forbearance andReservation of Rights letter from Wells Fargo Bank stating that they areaccepting current principal and interest payments and are not currentlyaccelerating the note, subject to agreeing to an acceptable Required CorrectiveAction for the covenant defaults.  It is unlikely that we will have anacceptable Required Corrective Action until our Earnings Before Interest Taxesand Depreciation ("EBITDA") improves.  If Wells Fargo were to accelerate thenote payable, we would need additional financing and we do not currently have asource for such financing.  Additionally, we have recorded an $87,000 currentliability related to the unrealized loss on our interest rate swap, as noted inNote 4 below.

F-12

The accompanying financial statementshave been prepared on a going concern basis, which contemplates the realizationof assets and the satisfaction of liabilities in the normal course ofbusiness.  Due to the classification of the entire Wells Fargo note payable asa current liability and the right of Wells Fargo to accelerate the requiredpayment of the note, we do not show the ability to fully satisfy ourliabilities in the normal course of business without raising additionalcapital.   It is our objective to acquire additional operating capital throughdebt and equity offerings and the possible sale of an existing restaurant withsuch funds to be used for the repayment of the Wells Fargo note and to increaseour working capital.  We believe we will be successful in raising sufficientadditional operating capital and in restructuring our debt obligations, howeverthere can be no assurance that we will be successful in raising such additionalfunds.  

The accompanying financial statementsdo not include any adjustments relating to the recoverability andclassification of assets and liabilities that might be necessary should we beunable to continue as a going concern.  Our continuation as a going concern isdependent upon on our ability to obtain additional operating capital,restructure our debt obligations and attain profitability.

In December, 2009 we entered into anagreement to extend the maturity of the PFGI II, LLC loan to December 31, 2012and modified the terms of the loan to include a 25 year amortization periodwith a balloon payment on December 31, 2012.  As a result, the majority of the PFGIII LLC loan is shown as a long term liability as of September 30, 2009. Weanticipate either developing a new restaurant on the land we owncollateralizing the PFGI II loan and reducing the amount of the loan by thevalue of the land or selling the property and using the proceeds to reduce theloan, with estimated net proceeds of $800,000 to $1,000,000.  We will continueto market the other land and building we own that collateralizes the PFGI loanfor a sale and leaseback and plan to use the net proceeds to reduce the loan.  

3.     Notes Receivable:

Notesreceivable consists of the following as of September 30, 2009:

Notes  receivable from franchisees related to restaurant equipment; 6.0% to 10%  interest per annum; monthly payments of principal and interest are due in the  amount of approximately $2,200; final payment due in 2012; collateralized by  all fixtures and equipment of the related restaurants.

33,000

 

Note  receivable from a franchisee related to a working capital loan; 10% interest  per annum; monthly payments of principal and interest are due in the amount  of $2,150; final payment due in 2013; collateralized by all fixtures and equipment  of the related restaurant.

  85,000

118,000

Less  current portion

  (36,000)

Notes receivable, net of current  portion

$  82,000

 

F-13

 

4.    Debt:

Note payable  with PFGI II, LLC with monthly payments of interest (prime rate +2%, with a  minimum rate of 8%, at September 30, 2010 the rate was 8.0%) through December  31, 2009.  Beginning in January 2010 payments of principal and interest  (8.65%, with a 25 year amortization) will be due monthly with a balloon  payment of all unpaid principal due on December 31, 2012.  The loan is  secured by two Real Property Deeds of Trust, four Leasehold Deeds of Trust  and Security Agreements and Assignment of Rents and  Fixture Filings and two Security Agreements and Assignment of Rents and  Fixture Filings related to those six corporate restaurants.  The promissory  note constitutes a line of credit which may be repaid but not re-advanced, at  any time.

$   2,500,000

Note payable  with Wells Fargo Bank, NA with payments of principal and interest (prime rate  less .5%) due monthly and the final payment due in April 2015.  The loan is  secured by four Security Agreements related to the furniture, fixtures and  equipment of the four corporate restaurants. This loan is classified as current  based on covenant violations as discussed below.

       846,000

Related Party note payable with  Golden Bridge, LLC with monthly payments of interest (10%) due monthly with  all unpaid principal due July 10, 2010. The promissory note is subject to the  terms of an Intercreditor Agreement between the Company, Golden Bridge, LLC  and PFG1 II, LLC, and the deeds of trust and security agreements described in  such Intercreditor Agreement. See note 7 below for further explanation.

       185,000

Unamortized note discount related to  warrants issued in connection with the above note payable with Golden Bridge,  LLC.

        (27,000)

Other, various terms

           1,000

     3,505,000

Less current portion

    (1,027,000)

Long term  portion

$   2,478,000

In conjunction with the Wells FargoBank term loan, the Company entered into a variable to fixed interest rate swapagreement with Wells Fargo Bank effective May 9, 2007, with a notional amountof $1,100,000, a pay rate of 7.77% and a receive rate based on the bank primerate less .50%. The swap agreement has an eight-year term and has the effect ofnormalizing the effective interest rate at 7.77%. As of September 30, 2009, thefair value of the contract was a loss of $87,000. The unrealized loss has beenrecorded in interest expense.

Asof September 30, 2009, principal payments on debt become due as follows:

Years Ending

September  30,

2010

$   1,027,000

2011

32,000

2012

34,000

2013

2,412,000

$3,505,000

In connection with the Wells FargoBank loan, the Company has agreed to certain covenants, which include minimumtangible net worth, a total liabilities to tangible net worth ratio and a fixedcharge coverage ratio, as defined in the agreement. As stated above in Note 2as of September 30, 2008, the Company is not in compliance with its loancovenants.

F-14

5.        Other Accrued Liabilities:

           Otheraccrued liabilities consist of the following at September 30, 2009:

Wages  and other employee benefits

$   225,000

Taxes,  other than income tax

491,000

Other

214,000

$930,000

6.        Commitments and Contingencies:

The Company's office space, and theland and buildings related to the Drive Thru restaurant facilities areclassified as operating leases and expire over the next 15 years. Some leasescontain escalation clauses over the lives of the leases. Most of the leasescontain one to three five-year renewal options at the end of the initial term.Certain leases include provisions for additional contingent rent payments ifsales volumes exceed specified levels. The Company paid no material contingentrentals during fiscal 2009 and 2008.

Following is a summary of operatinglease activities:

Year Ended  September 30,

2009

Minimum  rentals

$2,445,000

Less  sublease rentals

    (381,000)

Net rent  paid

$2,064,000

As of September 30, 2009, futureminimum rental commitments required under the Company's operating leases thathave initial or remaining noncancellable lease terms in excess of one year areas follows:

Years   Ending September 30, 2009

      2010

$2,223,000

      2011

2,062,000

      2012

1,951,000

      2013

1,887,000

      2014

1,779,000

   Thereafter

9,242,000

19,144,000

Less sublease rentals

   (2,645,000)

$16,499,000

The Company is contingently liable onseveral ground leases that have been subleased or assigned to franchisees. Thesubleased and assigned leases expire between 2010 and 2024. Currently we havenot been notified nor are we aware of any leases in default by the franchisees,however there can be no assurance that there will not be in the future whichcould have a material effect on our future operating results.

7.      Financing Transactions:

On March 1, 2008, we acquired the assets of tworestaurants from an existing franchisee for a total purchase price of$1,330,000, including the land, site improvements, building and equipment forone restaurant and site improvements, building and equipment on onerestaurant.  The purchase price was funded primarily from cash on hand of$272,000 and $849,000 in net proceeds from a simultaneous sale-leasebacktransaction to a third party investor involving the land, building andimprovements of one of the restaurants acquired.

As additional consideration and accounting in theacquisition, notes receivable from the franchisee of $250,000 were forgiven,and a deferred gain of $26,000 was written off. The deferred gain was relatedto a prior sale to the franchisee of one of the restaurants acquired. We didnot record a gain or loss related to this acquisition. The financial results ofthe two restaurants have been included in our financial results from theacquisition date forward.

F-15

The acquisition of the two restaurants wasaccounted for using the purchase method as defined in FASB ASC 805-10, BusinessCombinations. The purchase price was allocated as follows:

Current assets  net of current liabilities

$        14,000

Property and  equipment     

      1,316,000

Total purchase  price

$    1,330,000

The sale-leaseback transaction wasentered into simultaneously with the acquisition and involved selling the land,building and improvements of one of the acquired restaurants for net proceedsof $849,000. The sale-leaseback was the funding vehicle for the purchase of thetwo restaurants and was not used to raise cash for the Company or increase ourliquidity. The assets sold in the sale-leaseback transaction were neverrecorded in our financial statements as the long term lease entered into doesnot meet any of the criteria for a capital lease and therefore qualifies as anoperating lease, as defined in FASB ASC 840-10, Leases. After thesale-leaseback transaction was accounted for, it resulted in $476,000 in fixedassets and $14,000 in current assets recorded on our financial statements. Webelieve the $476,000 represents the fair value of the net assets acquired(after completion of the simultaneous sale-leaseback transaction) consisting offurniture, fixtures and equipment in two restaurants and the site improvementsand building in one restaurant.

In July 2008, we entered into a $2,500,000promissory note with an unrelated third party (PFGI II, LLC) and amended thatnote on April 20, 2009 extending the maturity to July 10, 2010 and again onDecember 14, 2009 extending the maturity to December 31, 2012.  The promissorynote originally constituted a revolving line-of-credit for the development ofnew restaurants which was advanced and repaid on a monthly basis from time totime.  The promissory note now constitutes a term loan with monthly payments ofprincipal and interest.  The loan is secured by separate leasehold deeds oftrust and security agreements related to six company-owned restaurants andfirst deeds of trust on two real properties funded by the line of credit. Thetotal outstanding balance on the line of credit was $2,500,000 at September 30,2009.  Of the $2,500,000 outstanding balance, $1,595,000 is related to theconstruction of one company-owned restaurant in Firestone, Colorado that openedin October 2008. The fully developed restaurant is currently being marketed inthe sale-leaseback market.  The remaining balance is related to the purchase,entitlement and other development fees on a parcel of land in Aurora, Coloradothat will be either developed into a company-owned restaurant, leased or sold.

On April 20, 2009 as reported on form 8-K, GoodTimes Restaurants Inc. (the "Company") and Good Times Drive Thru Inc. ("GTDT"),a wholly owned subsidiary of the Company, entered into a loan agreement withGolden Bridge, LLC ("Golden Bridge"), pursuant to which Golden Bridge made aloan of $185,000 (the "Golden Bridge Loan") to GTDT to be used for restaurantmarketing and other working capital costs.  Eric Reinhard, Ron Goodson, DavidGrissen, Richard Stark, and Alan Teran, who are all members of the Company'sBoard of Directors and stockholders of the Company, are the sole members ofGolden Bridge.  Eric Reinhard is the sole manager of Golden Bridge.  TheCompany's and GTDT's obtaining of the Golden Bridge Loan from Golden Bridge andrelated transactions were duly approved in advance by the Company's Board ofDirectors by the affirmative vote of members thereof who did not have aninterest in the transaction.

The Golden Bridge Loan is evidenced by apromissory note dated April 20, 2009 (the "Note") made by the Company and GTDT,as co-makers, and bears interest at a rate of 10% per annum on the unpaidprincipal balance.  The Note provides for monthly interest payments and willmature and be due and payable in full on July 10, 2010.  The commitment fee forthe Loan is $3,700.  The Golden Bridge Loan Agreement contains customary eventof default provisions and a cross-default provision with respect to the loanagreement for the PFGI II, LLC loan (as described above).

The Golden Bridge Loan Agreement and the GoldenBridge Note are subject to the terms of an intercreditor agreement dated April20, 2009 (the "Intercreditor Agreement"), among the Company, GTDT, GoldenBridge and PFGI II, LLC ("PFGI").  As previously reported by the Company, GTDTcurrently has a $2,500,000 revolving line of credit with PFGI (the "PFGILoan"), which was scheduled to mature on July 10, 2009, under which $2,500,000was outstanding as of April 20, 2009.  Under the Intercreditor Agreement, PFGIand Golden Bridge agreed that, upon any payments of principal or interest onthe Loan or the PFGI Loan by GTDT, PFGI and Golden Bridge shall each be entitledto its pro rata share of such payments in the amount of 93.1% for PFGI and 6.9%for Golden Bridge.  The Intercreditor Agreement also provides that GTDT and theCompany may prepay the Loan in whole or in part with the prior consent of PFGI,and that any other indebtedness of the Company or GTDT to PFGI or Golden Bridgeshall be subordinate in payment and lien priority to the Loan and the PFGI Loanto the extent of the proceeds of the collateral.  Under the IntercreditorAgreement, all money received from any foreclosure on the collateral securingthe PFGI Loan shall be applied to PFGI and Golden Bridge for their expensesrelated to such event and then on a pari passu basis to PFGI and Golden Bridgein accordance with their respective pro rata shares.

F-16

Prior to the closing of the Golden Bridge Loan,borrowings under the PFGI Loan were secured by GTDT's leasehold estates andbusiness assets with respect to certain of GTDT's restaurants located inBoulder, Adams, Jefferson and Larimer counties in Colorado and first deeds oftrust on real property in Arapahoe and Weld counties in Colorado developedunder the PFGI Loan.  In connection with PFGI's entry into the IntercreditorAgreement, GTDT and the Company entered into a first amendment to the amendedand restated promissory note dated April 20, 2009 (the "PFGI Note Amendment"),which extended the maturity date of the PFGI Loan until July 10, 2010. Effective January 1, 2010, the maturity of the PFGI Loan was further extendedto December 31, 2012 and the Company will enter into an Amended and RestatedPromissory Note.

Inconnection with the Golden Bridge Loan, the Company issued a three-year warrantdated April 20, 2009 (the "Warrant") to Golden Bridge which provides thatGolden Bridge may at any time from April 20, 2009 until April 20, 2012 purchaseup to 92,500 shares of the Company's common stock (the "Warrant Shares") at anexercise price of $1.15 per share.  The number of Warrant Shares and theexercise price are subject to customary antidilution adjustments upon theoccurrence of any stock dividends, stock splits, reverse stock splits,recapitalizations, reclassifications, stock combinations or similar events. Thefair value of the warrants issued was determined to be $42,000 with thefollowing assumptions; 1) risk free interest rate of 1.27%, 2) an expected lifeof 3 years, and 3) an expected dividend yield of zero. The fair value of$42,000 was charged to the note discount and credited to Additional Paid inCapital. The note discount will be amortized over the term of fourteen monthsand charged to interest expense.

8.      Managed Limited Partnerships:

Drive Thru is the general partner of two limitedpartnerships that were formed to develop Drive Thru restaurants.  Limitedpartner contributions have been used to construct new restaurants.  Drive Thru,as a general partner, generally receives an allocation of approximately 51% ofthe profit and losses and a fee for its management services.  The limitedpartners' equity has been recorded as a minority interest in the accompanyingconsolidated financial statements.

9.       Income Taxes:

Deferred tax assets (liabilities) are comprised ofthe following at September 30:
20092008CurrentLong TermCurrentLong Term
 
Deferred assets (liabilities):

 
Tax effect  of net operating loss carry-forward

$             -

$    2,292,000

$             -

$    1,886,000

 
Partnership  basis difference

               -

        143,000

               -

        124,000

 
Deferred  revenue

               -

        172,000

               -

        183,000

 
Property and  equipment basis differences

               -

        117,000

               -

          57,000

 
Other  accrued liability difference

       48,000

          36,000

         7,000

                  -

 
Net  deferred tax assets

       48,000

      2,760,000

         7,000

      2,250,000

 
Less  valuation allowance*

      (48,000)

     (2,760,000)

        (7,000)

     (2,250,000)

 
 

 

 

 

 
Net  deferred tax assets

$             -

$                -

$             -

$                -

 
*   Thevaluation allowance increased by $551,000 during the year endedSeptember 30, 2009.

The Companyhas net operating loss carry-forwards of approximately $6,012,000 for incometax purposes which expire from 2010 through 2029. The use of these net operating loss carry-forwards may be restricted due to changesin ownership.

F-17

Total income tax expense for the yearsended 2009 and 2008 differed from the amounts computed by applying the U.S.Federal statutory tax rates to pre-tax income as follows:

2009

2008

Total  expense (benefit) computed by applying the U.S. Statutory rate (35%)

$ (576,000)

$ (375,000)

State income tax, net of  federal tax benefit

  (50,000)

  (32,000)

Effect of change in valuation  allowance

   552,000

   144,000

Change in partnership basis

             -

   240,000

Permanent differences

    68,000

    57,000

Other

      6,000

  ( 34,000)

Provision for income taxes

$          -

$          -

10.        Related Parties:

The Erie County Investment Company(owner of 99% of The Bailey Company) is a substantial holder of our commonstock and has certain contractual rights to elect up to three members of theCompany's board of directors under the Series B Convertible Preferred StockAgreements entered into in February, 2005.

The Company leases office space fromThe Bailey Company under a lease agreement which expired in September 2009 andis currently leasing the space on a month to month basis.  Rent paid to them infiscal 2009 and 2008 for office space was $55,000 and $55,000, respectively.  

The Bailey Company is also the ownerof one franchised Good Times Drive Thru restaurant which is located inLoveland, Colorado and was the owner of one franchised restaurant in Thornton,Colorado which was closed in October 2009. The Bailey Company has entered intotwo franchise and management agreements with us, franchise royalties andmanagement fees paid under those agreements totaled approximately $78,000 and $94,000for the fiscal years ending September 30, 2009 and 2008, respectively. Amountsdue from The Bailey Company in regards to these agreements at September 30, 2009and 2008 were $18,000 in each year.

In April 2009 the Company entered intoa loan agreement with Golden Bridge, LLC ("Golden Bridge"), pursuant to whichGolden Bridge made a loan of $185,000 to the Company.  Eric Reinhard, RonGoodson, David Grissen, Richard Stark, and Alan Teran, who are all members ofthe Company's Board of Directors and stockholders of the Company, are the solemembers of Golden Bridge.  Eric Reinhard is the sole manager of Golden Bridge.  The Company's obtaining of the Loan from Golden Bridge and relatedtransactions were duly approved in advance by the Company's Board of Directorsby the affirmative vote of members thereof who did not have an interest in thetransaction.   Total interest and commitment fees paid under thisagreement were approximately $12,000 for fiscal 2009. The amount due to relatedparties under this agreement that is included in notes payable was $185,000 at September30, 2009. See Note 7 above for the terms of the loan. 

11.      FairValue of Financial Instruments:

The Company adopted the provisions ofFASB ASC 820, Fair Value Measurements and Disclosures, effective October 1,2008. FASB ASC 820 defines fair value, establishes a framework for measuring fairvalue under generally accepted accounting principles and enhances disclosuresabout fair value measurements.

Fair value is defined as the pricethat would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date.Valuation techniques used to measure fair value, as required by Topic 820 ofthe FASB ASC, must maximize the use of observable inputs and minimize the useof unobservable inputs.

FASB ASC 820 defines three levels ofinputs that may be used to measure fair value and requires that the assets orliabilities carried at fair value be disclosed by the input level under whichthey were valued. The input levels defined under FASB ASC 820 are as follows:

Level 1: Quoted market prices inactive markets for identical assets and liabilities.

F-18

Level 2: Observable inputs other thandefined in Level 1, such as quoted prices for similar assets or liabilities;quoted prices in markets that are not active; or other inputs that areobservable or can be corroborated by observable market data for substantiallythe full term of the assets or liabilities.

Level 3: Unobservable inputs that arenot corroborated by observable market data.

The following table summarizesfinancial assets and liabilities that are measured at fair value on a recurringbasis as of September 30, 2009:

Level 2

Interest RateSwap liability                $87,000

12.        Stockholders' Equity:

Preferred Stock - The Companyhas the authority to issue 5,000,000 shares of preferred stock.  The Board ofDirectors has the authority to issue such preferred shares in series anddetermine the rights and preferences of the shares as may be determined by theBoard of Directors.

Common Stock Dividend Restrictions - As long asat least two-thirds of the shares of common stock into which the Series BPreferred Stock was converted remains held by the former holders of suchconverted Series B Preferred Stock, without the written consent or affirmativevote of the holders of three-quarters of the then outstanding votes of theshares of the Series B Preferred Stock and the shares of the common stock, theCompany cannot institute any payment of cash dividends or other distributionson any shares of common stock.

Stock Option Plans - The Companyhas an Omnibus Equity Incentive Compensation Plan (the "2008  Plan"), approvedby shareholders in fiscal 2008, which is the successor equity compensation planto the Company's 2001 Stock Option Plan (the "2001  Plan").  As of September30, 2009, 172,841 shares were available for future grants of nonqualifiedstock options, incentive stock options, stock appreciation rights, restrictedstock, restricted stock units, performance shares, performance units andstock-based awards.

The 2008 Plan serves as the successorto our 2001 Plan, as amended (the "Predecessor Plan"), and no further awardsshall be made under the Predecessor Plan from and after the effective date ofthe 2008 Plan.  All outstanding awards under the Predecessor Plan immediatelyprior to the effective date of the 2008 Plan shall be incorporated into the2008 Plan and shall accordingly be treated as awards under the 2008 Plan. However, each such award shall continue to be governed solely by the terms andconditions of the instrument evidencing such grant or issuance, and, except asotherwise expressly provided in the 2008 Plan or by the Committee thatadministers the 2008 Plan, no provision of the 2008 Plan shall affect orotherwise modify the rights or obligations of holders of such incorporatedawards.

 Following theguidance of FASB ASC 718-10-30, Compensation - Stock Compensation, stock-basedcompensation is measured at the grant date, based on the calculated fair valueof the award, and is recognized as an expense over the requisite employeeservice period (generally the vesting period of the grant).

The Company measures the compensationcost associated with share-based payments by estimating the fair value of stockoptions as of the grant date using the Black-Scholes option pricing model. TheCompany believes that the valuation technique and the approach utilized todevelop the underlying assumptions are appropriate in calculating the fairvalues of the Company's stock options granted during fiscal 2009. Estimates offair value are not intended to predict actual future events or the valueultimately realized by the employees who receive equity awards.

Net income for the fiscal years endedSeptember 30, 2009 and 2008 includes $77,000 and $90,000, respectively, ofcompensation costs related to our stock-based compensation arrangements.

During the fiscal year ended September30, 2009, we granted 12,000 non-statutory stock options and 68,400 incentivestock options both with exercise prices of $1.47. The per share weightedaverage fair value was $.97 for both non-statutory stock option grants andincentive stock option grants.

In addition to the exercise and grantdate prices of the awards, certain weighted average assumptions that were usedto estimate the fair value of stock option grants are listed in the followingtable:

Incentive  Stock Options

Non-Statutory  Stock Options

Expected term (years)

6.5

6.7

Expected volatility

70%

67%

Risk-free interest rate

2.8%

2.8%

Expected dividends

0

0

F-19

We estimate expected volatility basedon historical weekly price changes of our common stock for a period equal tothe current expected term of the options. The risk-free interest rate is basedon the United States treasury yields in effect at the time of grantcorresponding with the expected term of the options. The expected option termis the number of years we estimate that options will be outstanding prior toexercise considering vesting schedules and our historical exercise patterns.

FASB ASC 718-10-30 requires the cashflows resulting from the tax benefits for tax deductions in excess of thecompensation expense recorded for those options (excess tax benefits) to beclassified as financing cash flows. These excess tax benefits were $0 for thefiscal years ended September 30, 2009 and 2008.

A summary of stock option activityunder our share-based compensation plan for the fiscal year ended September 30,2009 is presented in the following table:

Options

Weighted  Average Exercise Price

Weighted  Average Remaining Contractual Life (Yrs.)

Aggregate  Intrinsic Value

Outstanding-beg  of year

353,942

$4.04

Granted

 80,400

$1.47

Exercised

0

Forfeited

(15,160)

$4.90

Expired

(39,951)

$3.21

Outstanding  Sept 30, 2009

379,231

$3.55

5.6

$0

Exercisable  Sept 30, 2009

271,163

$3.68

4.4

$0

As ofSeptember 30, 2009, the total remaining unrecognized compensation cost relatedto unvested stock-based arrangements was $106,000 and is expected to berecognized over a weighted average period of 2.08 years.

The total intrinsic value of stockoptions exercised during the fiscal year ended September 30, 2009 was $0.  Cashreceived from stock option exercises for the fiscal year ended September 30,2009 was $0.

13.    Retirement Plan:

The Company has a 401(k) profitsharing plan (the "Plan").  Eligible employees may make voluntary contributionsto the Plan, which may be matched by the Company, in an amount equal to 25% ofthe employee's contribution up to 6% of their compensation.  The amount ofemployee contributions is limited as specified in the Plan. The Company may, atits discretion, make additional contributions to the Plan or change the matchingpercentage.  The Company made matching contributions of $0 and $30,000 infiscal 2009 and fiscal 2008 respectively.  All matching contributions are madein cash.

14.    Subsequent Events:

In December, 2009 the Companyentered into an agreement to amend the PFGI II Loan.  The maturity date wasextended to December 31, 2012, the interest rate was increased to 8.65% andmonthly payments of principal and interest will be payable beginning January31, 2010, based upon a 25 year amortization prior to maturity.  In connectionwith the agreement the Company also agreed to issue $125,000 of warrantsexercisable at the average market price during the twenty days prior to January2, 2010. 

Subsequent events have been evaluatedthrough December 28, 2009, the date the consolidated financial statements wereavailable to be issued. 

F-20

**Item 9.           ChangesIn and Disagreements with Accountants on Accounting and Financial Disclosure.**

During the two most recent fiscal years, GoodTimes Restaurants has not had any changes in or disagreements with itsindependent accountants on matters of accounting or financial disclosure.

**Item 9A.        Controls andProcedures**

**ConclusionRegarding the Effectiveness of Disclosure Controls and Procedures**

Based on anevaluation of the Company's disclosure controls and procedures (as defined inRules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, asamended), as of the end of the Company's fiscal year ended September 30,2009, the Company's Chief Executive Officer and Controller (its principal executiveofficer and principal financial officer, respectively) have concluded that theCompany's disclosure controls and procedures were effective.

**Management's Report on InternalControl Over Financial Reporting**

We areresponsible for establishing and maintaining adequate internal control overfinancial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securitiesand Exchange Act of 1934, as amended). We maintain a system of internalcontrols that is designed to provide reasonable assurance in a cost-effectivemanner as to the fair and reliable preparation and presentation of theconsolidated financial statements. 

Because of itsinherent limitations, internal control over financial reporting may not preventor detect misstatements. Therefore, even those systems determined to beeffective can provide only reasonable assurance with respect to financialstatement preparation and presentation.

We conducted an evaluation of the effectiveness ofour internal control over financial reporting as of September 30, 2009. Inmaking this evaluation, our management used the criteria set forth by theCommittee of Sponsoring Organizations of the Treadway Commission ("COSO") inInternal Control-Integrated Framework. This evaluation included a review of thedocumentation of controls, evaluation of the design effectiveness of controls,testing of the operating effectiveness of controls and a conclusion on thisevaluation. We have concluded that, as of September 30, 2009, theCompany's internal control over financial reporting was effective based onthese criteria.

This Annual Report does notinclude an attestation report of the Company's registered public accountingfirm regarding internal control over financialreporting.  Management's report was not subject to attestation by theCompany's registered public accounting firm pursuant to temporary rules of theSEC that permit the Company to provide only management's report in this AnnualReport.

**Changes in Internal Controlover Financial Reporting**

Therehave been no significant changes in the Company's internal control overfinancial reporting that occurred during the Company's fiscal quarter endedSeptember 30, 2009 that have materially affected, or are reasonably likelyto materially affect, the Company's internal control over financial reporting. 

**Item 9B.         Other Information**

Nothing to report.

**PART III**

**Item 10.         Directors,Executive Officers and Corporate Governance**

**Directors:** The directorsof Good Times Restaurants are as follows:

*Geoffrey R. Bailey,* age 58, hasserved as a Good Times director since 1996 and is a member of the SpecialCommittee.  He is also a director of The Erie County Investment Co., which owns99% of The Bailey Company.  The principal business of The Bailey Company isowning and operating 58 Arby's restaurants as a franchisee, and TheBailey Company has also been a franchisee and joint venture partner of GoodTimes Restaurants since 1987.  Mr. Bailey joined The Erie County Investment Co.in 1979.  Mr. Bailey is a graduate of the University of Denver with aBachelor's Degree in Business Administration.

***Ron Goodson*****, age 53, has served as a Good Times director since 2005 and is amember of the Compensation Committee.  He also is the Vice President &General Manager for the Pepsi Cola Bottling Group's Southwest MarketUnit.  Mr. Goodson has been with PepsiCo and Pepsi Bottling Groupfor 30 years where he has held numerous positions with increasingresponsibility in more than half a dozen geographical territories.  In additionMr. Goodson has served on the North America Diversity Advisory Board, the PBGAnnual Planning Steering Committee and is active with the Company's focuson campus recruiting and retention.  Mr. Goodson is a graduate of Wright StateUniversity.  His current executive board involvement is with theYMCA and The City of Hope.**

23

*David Grissen*, age 52, has served asa Good Times director since 2005 and is a member of the Audit Committee.  He isExecutive Vice President Eastern Region for Marriott International, a positionhe has held since 2005.  He is responsible for 730 hotels within theEastern Region (spanning from the states of Maine to South Carolina) operatedunder the Marriott Hotels & Resort, Marriott ConferenceCenters, Renaissance Hotels & Resorts, Courtyard, Residence Inn,TownePlace Suites and SpringHill Suites brands.  He oversees HumanResources, Sales and Marketing, Finance, Market Strategy, Information Resourcesand Development and Feasibility areas through key executives on the EasternRegional Team.  Prior to Mr. Grissen's current role, he served asSenior Vice President for the Marriott International Mid Atlantic Region.  Mr.Grissen joined Marriott from Dreyer's Grand Ice Cream in 1987, where he hadserved as Director of Finance and Planning.  Mr. Grissen holds a B.A. fromMichigan State University and a M.B.A. from Loyola University in Chicago. 

*Boyd E. Hoback*, age 54, hasserved as a Good Times director since 1992 and is President and Chief ExecutiveOfficer of Good Times Restaurants, a position which he has held since December1992, and he has been in the restaurant business since the age of 16.  Mr.Hoback has been a vital part of the development of Good Times to a52-restaurant chain and has been involved in developing all areas of the Company. Mr. Hoback is an honors graduate of the University of Colorado in finance.

*Eric W. Reinhard*, age 51, hasserved as a Good Times director since 2005 and in addition to serving asChairman of the Board, Mr. Reinhard also serves as President of the Pepsi ColaBottler's Association, a beverageassociation management and consulting association and a position hehas held since 2006. Prior to June 2004 he was the General Manager for thePepsi Bottling Group's Great West Business Unit.  While in this role, Mr.Reinhard was also a member of the Pepsi Bottling Group's Chairman's OperatingCouncil, a member of the Food Service Strategic Planning Committee, and amember of The Dr. Pepper Bottler Marketing Committee.   Mr. Reinhard joinedPepsi Cola in 1984 after four years with The Proctor & Gamble DistributingCompany.  Since 1984 he has held several field and headquarters positionsincluding Vice President/General Manager Pepsi-Lipton Tea partnership (JV),General Manager Mid-Atlantic business Unit, Area Vice President RetailChannels, Vice President On-Premise Operations and Area Vice President ofFranchise Operations.  Mr. Reinhard holds a BA from Michigan State Universityand has completed the Executive Business Program at the University of Michigan.

*Richard J. Stark*, age 69, hasserved as a Good Times director since July 1990.  He is Chairman of the AuditCommittee, and a member of the Compensation and Special Committees  Mr. Starkhas spent over 40 years in the investment industry.  He is currently Presidentof Boulder Asset Management, a firm that he founded in 1984. From 1982 - 1984,Mr. Stark was the Chief Investment Officer of Interfirst Investment Managementin Dallas, Texas and was responsible for all individual asset management atS&P/Intercapital in New York.  Mr. Stark is a graduate of MarquetteUniversity with a BS in business administration (finance) and has an MBA fromthe University of Illinois with a major in finance.  Mr. Stark received hischartered financial analyst designation in 1974.

*Alan A. Teran*, age 63, has served asa Good Times director since 1994.  He is a member of the Audit, Compensation andSpecial Committees.  Additionally, Mr. Teran has been a Director of Morton's ofChicago since 1993.  Mr. Teran is currently a principal in multiple privaterestaurants.  Mr. Teran served as president of Cork & Cleaver from 1975 -1981 and served as a Director for Boulder Valley National Bank and CharlieBrown's Restaurants. Hewas one of the first franchisees of Le Peep Restaurants.  Mr. Teran graduatedfrom the University of Akron in 1968 with a degree in business.

Thereare no family relationships among the directors.  The board has determined thatof the current directors Geoffrey R. Bailey, Ron Goodson, David Grissen,Richard J. Stark and Alan A. Teran are independent directors under the NASDAQlisting standards.

Geoffrey R. Baileywas originally elected to the Board of Directors pursuant to contractual boardrepresentation rights granted to The Bailey Company in connection with itsinvestment in shares of our Series A Convertible Preferred Stock in 1996.  Mr.Bailey continues to serve on the board pursuant to contractual boardrepresentation rights held by The Bailey Company and its affiliates ("TheBailey Group") in connection with our Series B Convertible Preferred Stockfinancing in February 2005, whereby The Bailey Group is currently entitled toelect three members of our Board of Directors, two of whom must be independentdirectors.  Richard J. Stark and Alan A. Teran are the additional members ofthe Board of Directors and nominees designated by The Bailey Group under theseprovisions.  Accordingly, the votes of The Bailey Group shall be determinativeas to the election of Messrs. Bailey, Stark and Teran.  The other investors inour Series B Convertible Preferred Stock financing also have boardrepresentation rights whereby they are currently entitled to elect threemembers of our Board of Directors.  Ron Goodson, David Grissen and Eric W.Reinhard are the members of the Board of Directors and nominees designatedunder these provisions.  Accordingly, the votes of the other investors in ourSeries B Convertible Preferred Stock financing shall be determinative as to theelection of Messrs. Goodson, Grissen and Reinhard.  See Item 13 "Certainrelationships and related transactions" for additional discussion of theseprovisions.  There are no other arrangements or understandings between anycurrent director and any other person under which that director was elected ornominated.  

24

**Nominee selection process****:**Our Board of Directors as a wholeacts as the nominating committee for the selection of nominees for election asdirectors.  We do not have a separate standing nominating committee since werequire that our director nominees be approved as nominees by a majority of ourindependent directors.  The board will consider suggestions by stockholders forpossible future nominees for election as directors at the next annual meetingwhen the suggestion is delivered in writing to the corporate secretary of GoodTimes Restaurants by August 15 of the year immediately preceding the annualmeeting.  No request for a recommended nominee was made by the August 15, 2009deadline by any stockholder or group of stockholders with beneficial ownershipof more than 5% of the Company's common stock as indicated in a Schedule 13D or13G.

Theboard selects each nominee, subject to contractual nominee designation andelection rights held by certain stockholders, as discussed below, based on thenominee's skills, achievements and experience, with the objective that theboard as a whole should have broad and relevant experience in high policymakinglevels in business and a commitment to representing the long-term interests ofthe stockholders.  The board believes that each nominee should have experiencein positions of responsibility and leadership, an understanding of our businessenvironment and a reputation for integrity.

Theboard evaluates each potential nominee individually and in the context of theboard as a whole.  The objective is to recommend a group that will effectivelycontribute to our long-term success and represent stockholder interests.  Indetermining whether to recommend a director for re-election, the board alsoconsiders the director's past attendance at meetings and participation in andcontributions to the activities of the board.

Whenseeking candidates for director, the board solicits suggestions from incumbentdirectors, management, stockholders or others.  The board does not have acharter for the nominating process.

**Communication with the directors****:** The board welcomes questionsor comments about us and our operations.  Those interested may contact theboard as a whole or any one or more specified individual directors by sending aletter to the intended recipients' attention in care of Good Times RestaurantsInc., Corporate Secretary, 601 Corporate Circle, Golden, CO 80401.  All suchcommunications other than commercial advertisements will be forwarded to theappropriate director or directors for review.

**Board Committees**

**AuditCommittee****:** The AuditCommittee currently consists of Messrs. Grissen, Teran and Stark, each of whomare independent directors under the applicable NASDAQ listing standards.   TheBoard has determined that Richard Stark is an audit committee financial expert,as that term is defined by the Securities and Exchange Commission("SEC") rules.  The function of this Committee relates to oversightof the auditors, the auditing, accounting and financial reporting processes andthe review of the Company's financial reports and information.  In addition,the functions of this Committee have included, among other things, recommendingto the Board the engagement or discharge of independent auditors, discussingwith the auditors their review of the Company's quarterly results and the resultsof their audit and reviewing the Company's internal accounting controls.  TheAudit Committee operates pursuant to a written Charter adopted by the Board ofDirectors.  A current copy of the Audit Committee Charter is available on ourwebsite at www.goodtimesburgers.com.  The Audit Committee held fourmeetings during fiscal 2009.

**Compensation Committee****:** TheCompensation Committee currently consists of Messrs. Goodson, Stark and Teran,each of whom are independent directors under the applicable NASDAQ listingstandards.  The function of this Committee is to consider and determine allmatters relating to the compensation of the President and Chief ExecutiveOfficer and other executive officers, including matters relating to theemployment agreements.  The Compensation Committee held one meeting duringfiscal 2009.

The Compensation Committee does not have aCharter. Theresponsibility of the Compensation Committee is to review and approve thecompensation and other terms of employment of our Chief Executive Officer andour other executive officers, including all of the executive officers named inthe Summary Compensation Table in Item 11 of Part III of this Form 10-K (the"Named Executive Officers").  Among its other duties, the CompensationCommittee oversees all significant aspects of the Company's compensation plansand benefit programs.  The Compensation Committee annually reviews and approvescorporate goals and objectives for the Chief Executive Officer's compensationand evaluates the Chief Executive Officer's performance in light of those goalsand objectives.  The Compensation Committee also recommends to the Board ofDirectors the compensation and benefits for members of the Board of Directors. The Compensation Committee has also been appointed by the Board of Directors toadminister our 2008 Omnibus Equity Incentive Compensation Plan (the "2008Plan"), which is the successor equity compensation plan to the Company's 2001Stock Option Plan (the "2001 Plan").  The Compensation Committee does not delegateany of its authority to other persons.

In carrying out its duties, theCompensation Committee participates in the design and implementation andultimately reviews and approves specific compensation programs.  TheCompensation Committee reviews and determines the base salaries for the NamedExecutive Officers, and also approves awards to the Named Executive Officersunder the Company's equity compensation plans.

25

In determining the amount and form of compensationfor Named Executive Officers other than the Chief Executive Officer, theCompensation Committee obtains input from the Chief Executive Officer regardingthe duties, responsibilities and performance of the other executive officersand the results of performance reviews.  The Chief Executive Officer alsorecommends to the Compensation Committee the base salary levels for all NamedExecutive Officers and the award levels for all Named Executive Officers underthe Company's equity compensation programs.  No Named Executive Officer attendsany executive session of the Compensation Committee or is present during finaldeliberations or determinations of such Named Executive Officer'scompensation.  The Chief Executive Officer also provides input with respect tothe amount and form of compensation for the members of the Board of Directors.

The Compensation Committee has the authority todirectly engage, at the Company's expense, any compensation consultants orother advisers as it deems necessary to carry out its responsibilities indetermining the amount and form of executive and director compensation.  Forfiscal 2009, the Compensation Committee did not use the services of acompensation consultant or other adviser.  However, the Compensation Committeehas reviewed surveys, reports and other market data against which it hasmeasured the competitiveness of the Company's compensation programs.  Indetermining the amount and form of executive and director compensation, theCompensation Committee has reviewed and discussed historical salary informationas well as salaries for similar positions at comparable companies.

**Special Committee:**  On August14, 2009 as reported on form 8-K we announced that our Board of Directors hasformed a Special Committee comprised of directors Richard Stark, Alan Teran andGeoff Bailey to explore and evaluate strategic alternatives aimed at enhancingshareholder value and explore alternatives to reduce the cost burdens of beinga publicly held entity.  At that time, the Company hired Mastodon Ventures,Inc. to provide strategic advisory services and explore other strategicalternatives that will further the long-term business prospects of the Companyand provide incremental value to its shareholders.  The foregoing activitiesare continuing without yet any specific recommended alternatives.

**Directors' meetings and attendance****:** There werenine meetings of the Board of Directors held during the last full fiscal year.No member of the Board of Directors attended fewer than 75% of the boardmeetings and applicable committee meetings.

Eachdirector attended the 2009 annual meeting of stockholders.

**Directors' compensation****:** Eachnon-employee director receives $500 for each Board of Directors meetingattended.  Members of the Compensation and Audit Committees generally eachreceive $100 per meeting attended.  However, where both Compensation and Audit Committeemeetings are held at the same gathering only $100 is paid to directorsattending both committee meetings.  Additionally, for the fiscal year endedSeptember 30, 2009, each non-employee director received a non-statutory stockoption to acquire 2,000 shares of common stock at an exercise price of $1.15.

**Audit Committee Report****:** Good Times Restaurant'smanagement is responsible for the internal controls and financial reportingprocess for Good Times Restaurants.  The independent accountants for Good TimesRestaurants are responsible for performing an independent audit of thefinancial statements in accordance with generally accepted auditing standardsand to issue a report on those financial statements.  The Audit Committee'sresponsibility is to monitor and oversee these processes.

In this context, the AuditCommittee met with management and the independent accountants to review anddiscuss the Good Times Restaurants financial statements for the fiscal yearended September 30, 2009.  Management represented to the Audit Committee thatthe financial statements were prepared in accordance with generally acceptedaccounting principles, and the Audit Committee has reviewed and discussed thefinancial statements with management and the independent accountants.

The Audit Committee hasdiscussed with the independent accountants matters required to be discussed byStatement on Auditing Standards No. 61, Communication with Audit Committees. The Audit Committee has also received the written disclosures and the letterfrom the independent accountants required by applicable requirements of thePublic Company Accounting Oversight Board regarding the independentaccountants' communications with the Audit Committee concerning independence andthe Audit Committee discussed with the independent accountants that firm'sindependence.

Based on the AuditCommittee's review and discussions referred to above, the Audit Committeerecommended to the Board of Directors that the audited financial statements beincluded in the Good Times Restaurants Annual Report on Form 10-K for thefiscal year ended September 30, 2009 for filing with the SEC.

**Executive officers****:** The executiveofficers of Good Times Restaurants are as follows:

**Name**

**Age**

**Position**

**Date Began  With Company**

Boyd E. Hoback

54

President & CEO

September 1987

Susan M. Knutson

51

Controller

September 1987

Scott G. LeFever

51

VP of Operations

September 1987

*Boyd E. Hoback.*  See thedescription of Mr. Hoback's business experience under "Directors".

26

*Susan M. Knutson*has beenController since 1993 with direct responsibility for overseeing the accountingdepartment, maintaining cash controls, producing budgets, financials and quarterlyand annual reports required to be filed with the Securities and ExchangeCommission, acting as the principal financial officer of the Company, andpreparing all information for the annual audit.

*Scott G. LeFever* has been VicePresident of Operations since August 1995, and has been involved in all phasesof operations with direct responsibility for restaurant service performance,personnel and cost controls.

Executiveofficers do not have fixed terms and serve at the discretion of the Board of Directors. There are no family relationships among the executive officers, directors ordirector nominees.

**Code of ethics**: Good TimesRestaurants has adopted a Code of Business Conduct which applies to alldirectors, officers, employees and franchisees of Good Times Restaurants.  TheCode of Business Conduct was filed with the SEC as an exhibit to the AnnualReport on Form 10-KSB for the fiscal year ended September 30, 2003.

**Item 11.         ExecutiveCompensation**

**Executive Compensation:**The following table sets forth compensation information for 2009 and 2008 withrespect to the named executive officers:

**SummaryCompensation Table for 2009 and 2008**

Name and Principal  Position

Year

Salary  $

Bonus  $

Stock  Awards $

Option  Awards $3

Non-Equity  Incentive Plan Compensation $

Nonqualified  Deferred Compensation Earnings $

All  Other Compensation $

Total  $

Boyd E. Hoback

2009

162,083

_

_

25,118

_

_

16,0731

203,274

President and Chief  Executive Officer

2008

193,400

_

_

17,436

_

_

17,7541

228,590

Scott G. LeFever

2009

101,667

_

_

9,979

_

_

11,4772

123,123

Vice President of  Operations

2008

119,775

5,481

_

5,277

_

_

11,2622

141,795

1    Theamount indicated for Mr. Hoback includes an automobile allowance, long-termdisability and 401(K) Plan matching contributions.

2    Theamount indicated for Mr. LeFever includes an automobile allowance, long-termdisability, personal expenses and 401(K) Plan matching contributions.

3    Thevalue of stock option awards shown in this column includes all amounts expensedin the Company's financial statements in 2008 and 2009 for equity awards in accordancewith the guidance of FASB ASC 718-10-30, Compensation - Stock Compensation,excluding any estimate for forfeitures.  The Company's accounting treatmentfor, and assumptions made in the valuations of, equity awards is set forth inNote 1 of the notes to the Company's 2009 consolidated financial statementsincluded in the Company's Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2009.  There were no option awards re-priced in 2009.

Therewere no shares of SARs granted during 2009 or 2008 nor has there been anynonqualified deferred compensation paid to any named executive officers during2009 or 2008.  The Company does not have any plans that provide for specifiedretirement payments and benefits at, following or in connection withretirement.

27

The followingtable sets forth information as of September 30, 2009 on all unexercisedoptions previously awarded to the named executive officers:

**Outstanding  Equity Awards at 2009 Fiscal Year-End**

**___________________________ Option  Awards______________________**

** **

**_______________ Stock  Awards_________**

Name  

Number of  Securities Underlying Unexercised Options -Exercisable (#)

Number of  Securities Underlying Unexercised Options -Unexercisable (#)

Equity  Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned  Options (#)

Option  Exercise Price $

Option  Expiration Date

Number of  Shares or Units of Stock That Have Not Vested (#)

Market Value  of Shares or Units of Stock That Have Not Vested ($)

Equity  Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That  Have Not Vested (#)

Equity  Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or  Other Rights That Have Not Vested ($)

Boyd  E. 

19,231

-

-

$3.12

10/01/09

-

-

-

-

 Hoback

2,500

-

-

$1.38

10/01/10

-

-

-

-

50,000

-

-

$1.75

10/01/11

-

-

-

-

3,750

-

-

$2.70

10/01/12

-

-

-

-

3,900

-

-

$3.60

10/01/13

-

-

-

-

12,000

-

-

$3.11

10/01/14

-

-

-

-

8,500

-

-

$5.68

10/01/15

-

-

-

-

5,700

13,300 (1)

-

$6.38

11/17/16

-

-

-

-

0

28,503 (2)

-

$1.47

11/14/18

-

-

-

-

Scott  G.

1,260

-

-

$2.70

10/01/12

-

-

-

-

 LeFever

2,580

-

-

$3.60

10/01/13

-

-

-

-

5,750

-

-

$3.11

10/01/14

-

-

-

-

5,750

-

-

$5.68

10/01/15

-

-

-

-

1,725

4,025  (1)

-

$6.38

11/17/16

-

-

-

-

0

17,007 (2)

-

$1.47

11/14/18

-

-

-

-

1       The optionswere granted on November 17, 2006. Assuming continued employment with theCompany, the shares under the option agreements will become exercisable per avesting schedule which began on November 17, 2007 continuing through November17, 2010, whereby options vest per the following schedule: 10% on November 17,2007; an additional 20% on November 17, 2008; an additional 30% on November 17,2009; and an additional 40% on November 17, 2010.

2       The optionswere granted on November 14, 2008. Assuming continued employment with the Company,the shares under the option agreements will become fully exercisable onNovember 14, 2011.

28

The following table sets forthcompensation information for 2009 with respect to directors:

**Director  Compensation Table for Fiscal Year 2009**

Name

Fees Earned  or Paid in Cash ($)

Stock Awards  ($)

Option  Awards ($) 1, 2

Non-Equity  Incentive Plan Compensation ($)

Nonqualified  Deferred Compensation Earnings $

All Other  Compensation $ 3

Total $

Geoffrey  R. Bailey

2,000

-

1,949

-

-

-

3,949

Ron  Goodson

2,000

-

1,949

-

-

-

3,949

David  Grissen

2,000

-

1,949

-

-

-

3,949

Eric  W. Reinhard 

1,000

-

1,949

-

-

2,000

4,949

Richard  J. Stark

2,000

-

1,949

-

-

-

3,949

Alan  A. Teran

2,000

-

1,949

-

-

-

3,949

Boyd  E. Hoback 4

-

-

-

-

-

-

0

1       The value of stock optionawards shown in this column includes all amounts expensed in the Company'sfinancial statements in 2009 for equity awards in accordance with the guidanceof FASB ASC 718-10-30, Compensation - Stock Compensation, excluding anyestimate for forfeitures.  The Company's accounting treatment for, andassumptions made in the valuation of equity awards are set forth in Note 1 ofthe notes to the Company's 2009 consolidated financial statements included inthe Company's Annual Report on Form 10-K for the fiscal year ended September30, 2009.  There were no option awards re-priced in 2009.

 2         As of September30, 2009, the following directors held options to purchase the following numberof shares of our common stock:  Mr. Bailey 12,000 shares; Mr. Goodson 10,000shares; Mr. Grissen 10,000 shares; Mr. Reinhard 14,500 shares; Mr. Stark 12,000shares; Mr. Teran 12,000 shares; and Mr. Hoback 128,153 shares.

3          The amountindicated for Mr. Reinhard included an expense allowance for a part of thefiscal year in his role as Chairman.

4          Mr. Hoback isan employee director and does not receive additional fees for service as amember of the Board.

A descriptionof the standard compensation arrangements (such as fees for committee service,service as chairman of the board or a committee, and meeting attendance) is setforth in the section entitled "Directors' Compensation" above.

**EmploymentAgreement:** Mr. Hoback entered into an employment agreement with us in October 2001 and theterms of the agreement were revised effective October 2007 for compliance withSection 409A of the Internal Revenue Code.  The revised agreement provides forhis employment as president and chief executive officer for two years from thedate of the agreement at a minimum salary of $190,000 per year, terminable byus only for cause.  The agreement provides for payment of one year's salary andbenefits in the event that change of ownership control results in a terminationof his employment or termination other than for cause.  This agreement renewsautomatically unless specifically not renewed by the Board of Directors.  Mr.Hoback's compensation, including salary, expense allowance, bonus and anyequity award, is reviewed and set annually by the Compensation Committee.  Mr.Hoback's bonus, when applicable, is based on the Company's achieving certainEarnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")targets for the year.

**Other Employment Arrangements:**  Mr. LeFever isemployed as an "employee at will" and does not have a written employment agreement. His compensation, including salary, expense allowance, bonus and any equityawards, is reviewed and approved by the Compensation Committee annually.  Heparticipates in a bonus program that is based on both the company's level ofEBITDA for the year and achieving certain operating metrics and sales targets. 

29

** **

**Item12.         Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters**

**Ownership of common stock by principalstockholders and management****:** The following table shows thebeneficial ownership of shares of Good Times Restaurants common stock as of December15, 2009 by each person known by Good Times Restaurants to be the beneficialowner of more than five percent of the shares of Good Times Restaurants commonstock, each director and each executive officer named in the SummaryCompensation Table, and all directors and executive officers as a group.  Theaddress for the principal stockholders and the Directors and Officers is 601Corporate Circle, Golden, CO 80401.
****
**Holder**

**Number of  shares**

**Percent of**

**Principal  stockholders**

**beneficially  owned**

**class****

The  Bailey Company, LLLP

821,5121

21.07%

The  Erie County Investment Co.

1,016,1921

26.07%

Commonwealth  Equity Services LLP

316,5132

8.12%

Paul  T. Bailey

1,074,1923

27.55%

**Directors  and Officers**

** **

** **

Geoffrey  R. Bailey, Director

23,3004

*

Ron  Goodson, Director

214,4975

5.48%

David  Grissen, Director

231,9996

5.90%

Boyd  E. Hoback, Director, President and Chief Executive Officer

144,9947

3.59%

Scott  G. LeFever, Vice President, Operations

21,4138

*

Richard  J. Stark, Director

62,1039

1.58%

Alan  A. Teran, Director

 113,20610

2.88%

Eric  W. Reinhard, Chairman

314,00011

7.94%

All  directors and executive officers as a group

(9  persons including all those named above)

1,144,73612

26.73%

1    The BaileyCompany is 99% owned by The Erie County Investment Co., which should be deemedthe beneficial owner of Good Times Restaurants common stock held by The BaileyCompany.  The Erie County Investment Co. also owns 194,680 shares of Good TimesRestaurants common stock in its own name.  Geoffrey R. Bailey is a director andexecutive officer of The Erie County Investment Co.  Geoffrey R. Baileydisclaims beneficial ownership of the shares of Good Times Restaurants commonstock held by The Bailey Company and The Erie County Investment Co.  Seefootnote 3 below.

2    The informationas to Commonwealth Equity Services LLP ("Commonwealth") and entitiescontrolled directly or indirectly by Commonwealth is derived in part fromSchedule 13G, as filed with the Securities and Exchange Commission onDecember 23, 2005 and most recently amended on February 11, 2009, andinformation furnished to Good Times separately by Commonwealth.

3    Includes821,512 shares beneficially owned by The Bailey Company and 194,680 shares heldof record by The Erie County Investment Co.  Paul T. Bailey is the principalowner of The Erie County Investment Co. and may be deemed the beneficial ownerof shares held by The Erie County Investment Co. and The Bailey Company.  Paul T.Bailey disclaims beneficial ownership of the shares held by The Erie CountyInvestment Co. and The Bailey Company.  Paul T. Bailey is the father ofGeoffrey R. Bailey.

4    Includes 14,000shares underlying presently exercisable stock options.

5    Includes 12,000shares underlying presently exercisable stock options and 2,497 warrants topurchase stock.

6    Includes 12,000shares underlying presently exercisable stock options and 19,999 warrants topurchase stock.

7    Includes100,002 shares underlying presently exercisable stock options

8    Includes 21,413shares underlying presently exercisable stock options

9    Includes 14,000shares underlying presently exercisable stock options and 15,003 warrants topurchase stock.

10  Includes 14,000shares underlying presently exercisable stock options and 17,501 warrants topurchase stock

11  Includes 16,500shares underlying presently exercisable stock options and 37,500 warrants topurchase stock

12  Does notinclude shares held beneficially by The Bailey Company and The Erie CountyInvestment Co.  If those shares were included, the number of sharesbeneficially held by all directors and executive officers as a group would be2,160,928 and the percentage of class would be 50.46%.

*  Less than one percent.

** UnderSEC rules, beneficial ownership includes shares over which the individual orentity has voting or investment power and any shares which the individual orentity has the right to acquire within sixty days.

30

The information required by this Itemconcerning securities authorized for issuance under equity compensation plansis incorporated by reference to the information provided under the caption"Disclosure with Respect to the Company's Equity Compensation Plan"in Part II - Item 5 - Market for Common Equity and Related Stockholder Matters,included in this Form 10-K.

**Item 13.         Certain Relationshipsand Related Transactions and Director Independence.**

In February 2005, we issued 1,240,000 shares ofour Series B Convertible Preferred Stock, including 180,000 shares to The ErieCounty Investment Co., a substantial holder of our common stock and member ofThe Bailey Group.  In June 2006, we exercised our mandatory conversion rightsunder the terms of the Series B preferred stock to convert all of those sharesinto a total of 1,240,000 shares of our common stock.  Under the agreements forthe Series B preferred stock financing, The Bailey Group currently has theright to elect three directors, provided that two directors meet the NASDAQindependence standards.  Furthermore, the other investors in the Series Bpreferred stock financing currently have the right to elect three directors. The number of director positions subject to these provisions will decreaseproportionally to the extent that the original investors sell or otherwise transferthe common stock into which the Series B shares have been converted.  Anadditional provision of the Series B preferred stock financing restricts, foras long as the original investors hold at least two-thirds of the common stockinto which the Series B shares have been converted, our ability to increase thesize of the Board of Directors above seven directors unless we first receiveapproval from the holders of at least three-fourths of all outstanding sharesof common stock.  Geoffrey R. Bailey, Richard J. Stark and Alan A. Teran arethe current directors designated by The Bailey Group, and Ron Goodson, DavidGrissen and Eric W. Reinhard are the current directors designated by the otherinvestors.  Geoffrey R. Bailey is a director of The Erie County Investment Co.,which owns 99% of The Bailey Company.  The Bailey Company and The Erie CountyInvestment Co. are principal stockholders of us.  Geoffrey R. Bailey's father,Paul T. Bailey, is the principal owner of The Erie County Investment Co.

Our corporate headquarters are located in abuilding owned by The Bailey Company and in which The Bailey Company also hasits corporate headquarters.  We currently lease our executive office space ofapproximately 3,693 square feet from The Bailey Company for approximately $55,000per year.  The lease expired September 30, 2009 and we continue to lease thespace on a month to month basis.

TheBailey Company is also the owner of one franchised Good Times Drive Thrurestaurant which is located in Loveland, Colorado and was the owner of onefranchised restaurant in Thornton, Colorado which was closed in October 2009.The Bailey Company has entered into two franchise and management agreementswith us.  Franchise royalties and management fees paid under those agreementstotaled approximately $78,000 and $94,000 for the fiscal years ending September30, 2009 and 2008, respectively.

InApril 2009 the Company entered into a loan agreement with Golden Bridge, LLC("Golden Bridge"), pursuant to which Golden Bridge made a loan of $185,000 tothe Company.  Eric Reinhard, Ron Goodson, David Grissen, Richard Stark, andAlan Teran, who are all members of the Company's Board of Directors andstockholders of the Company, are the sole members of Golden Bridge.  EricReinhard is the sole manager of Golden Bridge.  The Company's obtaining of theLoan from Golden Bridge and related transactions were duly approved in advanceby the Company's Board of Directors by the affirmative vote of members thereofwho did not have an interest in the transaction.   Total interest andcommitment fees paid under this agreement were approximately $12,000 for fiscal2009. The amount due to related parties under this agreement that is includedin notes payable was $185,000 at September 30, 2009. See Note 7 above for theterms of the loan.

InAugust 2008 we announced the suspension of development of Good Timesrestaurants under a 2007 Development Agreement with Zen Partners LLC, in whichDavid Grissen, a significant stockholder and a member of our Board of Directors,has a 20% ownership interest.  No restaurants have been developed under theagreement.  We may reevaluate expansion discussion with Zen Partners LLC asconditions impacting our sales trends, the macroeconomic environment and creditmarkets change.

**Section16(a) beneficial ownership reporting compliance:** Under Section 16(a) of theSecurities Exchange Act of 1934, directors, executive officers and persons whoown more than ten percent of Good Times Restaurants common stock must disclosetheir initial beneficial ownership of the common stock and any changes in thatownership in reports which must be filed with the SEC and Good TimesRestaurants. The SEC has designated specific deadlines for these reports andGood Times Restaurants must identify in this proxy statement those persons whodid not file these reports when due.

Basedsolely on a review of the reports filed with Good Times Restaurants and writtenrepresentations received from reporting persons Good Times Restaurants believesthat during the fiscal year ended September 30, 2009 all Section 16(a) filingrequirements for its officers, directors, and more than ten percentshareholders were complied with on a timely basis.

**Item 14.         Principal AccountantFees and Services**

31

**INDEPENDENT PUBLIC ACCOUNTANTS****:** The Board of Directorsappointed HEIN & ASSOCIATES LLP as Good Times Restaurants' independentauditors for the fiscal year ended September 30, 2008 and fiscal year 2009, andto perform other accounting services.  Representatives of HEIN & ASSOCIATESLLP are expected to be present at the annual meeting of shareholders, and willhave the opportunity to make a statement if they so desire and to respond toappropriate shareholder questions.

**Audit Fees****:** The aggregatefees billed for professional services rendered by HEIN & ASSOCIATES LLP forits audit of the Company's annual financial statements for the fiscal yearended September 30, 2009, and its reviews of the financial statements includedin the Company's Forms 10-Qs for fiscal year 2009 were $86,236 compared to $75,593in fees for the fiscal year ended 2008.

**Audit Related Fees:** There were noaggregate fees billed by HEIN & ASSOCIATES LLP for assurance and relatedservices that are reasonably related to the performance of the audit or reviewof our financial statements and are not reported under "Audit Fees" for thefiscal years ended September 30, 2009 and September 30, 2008.

**Tax Fees:** The aggregatefees billed by HEIN & ASSOCIATES LLP for the preparation and review of theCompany's tax returns for the fiscal year ended September 30, 2009 were $11,350compared to $10,900 in fees for the fiscal year ended September 30, 2008.

**All Other Fees****:** The aggregatefees billed to Good Times Restaurants for all other services rendered by HEIN& ASSOCIATES LLP for fiscal year 2009 were $12,562 compared to $10,806 infees for the fiscal year ended September 30, 2008.  These fees are related to a401(k) plan audit.

**Audit Committee:** Policy onPre-Approval Policies of Auditor Services: Under the provisions of the AuditCommittee Charter, all audit services and all permitted non-audit services(unless subject to a de minimis exception allowed by law) provided by ourindependent auditors, as well as fees and other compensation to be paid tothem, must be approved in advance by our Audit Committee.  All audit and otherservices provided by HEIN & ASSOCIATES LLP during the fiscal year endedSeptember 30, 2009, and the related fees as discussed above, were approved inadvance in accordance with SEC rules and the provisions of the Audit CommitteeCharter.  There were no other services or products provided by HEIN &ASSOCIATES LLP to us or related fees during the fiscal year ended September 30,2009 except as discussed above.

**AuditorIndependence****:** The Audit Committee of the Board ofDirectors has considered the effect that the provision of the servicesdescribed above under the caption "All Other Fees" may have on the independenceof HEIN & ASSOCIATES LLP.  The Audit Committee has determined thatprovision of those services is compatible with maintaining the independence ofHEIN & ASSOCIATES LLP as the Company's principal accountants.

32

** **

**PART IV**

**Item 15.         Exhibits, FinancialStatement Schedules.**

The following exhibits are furnished as part ofthis report:

**Exhibit****           Description**

3.1             Articlesof Incorporation of the Registrant (previously filed on November 30, 1988 asExhibit 3.1 to the registrant's Registration Statement on Form S-18 (File No.33-25810-LA) and incorporated herein by reference)

3.2             Amendmentto Articles of Incorporation of the Registrant dated January 23, 1990(previously filed on January 18, 1990 as Exhibit 3.1 to the registrant'sCurrent Report on Form 8-K (File No. 000-18590) and incorporated herein byreference)

3.3             Amendmentto Articles of Incorporation (previously filed as Exhibit 3.5 to theregistrant's Annual Report on Form 10-KSB for the fiscal year ended September30, 1996 and (File No. 000-18590) incorporated herein by reference)

3.4             RestatedBylaws of Registrant dated November 7, 1997 (previously filed as Exhibit 3.6 tothe registrant's Annual Report on Form 10-KSB for the fiscal year endedSeptember 30, 1997 (File No. 000-18590) and incorporated herein by reference)

3.5             RestatedBylaws of Registrant, amended as of August 14, 2007 (previously filed asExhibit 3/1 to the registrant's current report on Form 8-K dated August 14,2007 (File No. 000-18590) and incorporated herein by reference)

4.1             Certificateof Designations, Preferences, and Rights of Series B Convertible PreferenceStock of Good Times Restaurants Inc. (previously filed as Exhibit 1 to theAmendment No. 6 to Schedule 13D filed by The Erie County Investment Co., TheBailey Company, LLLP and Paul T. Bailey (File No. 005-42729) on February 14,2005 and incorporated herein by reference)

10.1           RegistrationRights Agreement dated May 31, 1996 regarding registration rights of the commonstock issuable upon conversion of the Series A Convertible Preferred Stock(previously filed as Exhibit 10.15 to the registrant's Annual Report on Form10-KSB/A for the fiscal year ended September 30, 1995 (File No. 000-18590) andincorporated herein by reference)

10.2           Amendmentand Agreement regarding Series A Convertible Preferred Stock by and betweenGood Times Restaurants Inc. and The Bailey Company dated December 3, 1997,effective as of October 31, 1997 (previously filed as Exhibit 10.13 to theregistrant's Annual Report on Form 10-KSB for the fiscal year ended September30, 1997 (File No. 000-18590) and incorporated herein by reference)

10.3           Officelease (previously filed as Exhibit 10.12 to the registrant's Annual Report onForm 10-KSB for the fiscal year ended September 30, 1998 (File No. 000-18590)and incorporated herein by reference)

10.4           1992Incentive Stock Option Plan, as amended (previously filed as Exhibit 4.9 to theregistrant's Annual Report on Form 10-KSB for the fiscal year ended September30, 1998 (File No. 000-18590) and incorporated herein by reference)

10.5           1992Non-Statutory Stock Option Plan, as amended (previously filed as Exhibit 4.10to the registrant's Annual Report on Form 10-KSB for the fiscal year endedSeptember 30, 1998 (File No. 000-18590) and incorporated herein by reference)

10.6           EmploymentAgreement dated October 3, 2001 between the registrant and Boyd E. Hoback

10.7           WellsFargo Credit Agreement (previously filed as Exhibit 10.17 to the registrant'sAnnual Report on Form 10-KSB for the fiscal year ended September 30, 2003 (FileNo. 000-18590) and incorporated herein by reference)

10.8           Formof Option Agreement (previously filed as Exhibit 10.18 to the registrant'sAnnual Report on Form 10-KSB for the fiscal year ended September 30, 2004 (FileNo. 000-18590) and incorporated herein by reference)

10.9           Formof Option Grant Notice (previously filed as Exhibit 10.19 to the registrant'sAnnual Report on Form 10-KSB for the fiscal year ended September 30, 2004 (FileNo. 000-18590) and incorporated herein by reference)

10.10          CashBonus Plan for Boyd Hoback (previously filed as Exhibit 10.20 to theregistrant's Annual Report on Form 10-KSB for the fiscal year ended September30, 2004 (File No. 000-18590) and incorporated herein by reference)

33

10.11          SecuritiesPurchase Agreements (previously filed on the registrant's Current Report onForm 8-K dated January 3, 2005 (File No. 000-18590) and incorporated herein byreference)

10.12          Amendmentto Securities Purchase Agreement (previously filed as Exhibit 10.1 to theregistrant's Form 8-K Report dated January 27, 2005 (File No. 000-18590) andincorporated herein by reference)

10.13          2001Stock Option Plan, as amended (previously filed as Exhibit 99.1 to theregistrant's Registration Statement on Form S-8 filed on May 23, 2005(Registration No. 333-125150) and incorporated herein by reference)

10.14          RegistrationStatement (previously filed on the registrant's Registration Statement on FormS-3 filed on February 17, 2005 (Registration No. 333-122890) and incorporatedherein by reference

10.15          AmendmentNo. 1 to Registration Statement (previously filed on the registrant'sRegistration Statement on Form S-3 filed on April 4, 2005 (Registration No.333-122890) and incorporated herein by reference

10.16          Conversionof Series B Convertible Preferred Stock (previously filed as Exhibit 99.1 tothe registrant's Form 8-K Report dated June 8, 2006 (File No. 000-18590) andincorporated herein by reference)

10.17          LoanAgreement and Promissory Note (previously filed as Exhibit 10.1 and 10.2 to theregistrant's Form 8-K Report dated August 7, 2006 (File No. 000-18590) andincorporated herein by reference)

10.18          Accelerationof Vesting of Stock Options and Form of Resale Restriction Agreement(previously filed as Exhibit 10.1 to the registrant's Form 8-K Report datedAugust 8, 2006 (File No. 000-18590) and incorporated herein by reference)

10.19          Expansionof Loan Agreement and Promissory Note (previously filed as Exhibit 10.1 and10.2 to the registrant's Form 8-K Report dated March 15, 2007 (File No.000-18590) and incorporated herein by reference)

10.20          LoanAgreement and Promissory Note (previously filed as Exhibit 10.1 and 10.2 to theregistrant's Form 8-K Report dated May 7, 2007 (File No. 000-18590) andincorporated herein by reference)

10.21          AmendmentNo. 1 to Loan Agreement and Promissory Note (previously filed as Exhibit 10.1and 10.2 to the registrant's Form 8-K Report dated May 10, 2007 (File No.000-18590) and incorporated herein by reference)

10.22          2008Omnibus Equity Incentive Compensation Plan (previously filed as Exhibit 10.1 to the registrant's Form 8-K Report dated January 29, 2008 (File No. 000-18590)and incorporated herein by reference)

10.23          EmploymentAgreement of Boyd E. Hoback (previously filed as Exhibit 10.1 to theregistrant's Form 8-K Report dated January 29, 2008 (File No. 000-18590) andincorporated herein by reference)

10.24          LetterAgreement between Good Times Drive Thru Inc. and CEDA Enterprises, Inc.(previously filed as Exhibit 10.1 to the registrant's Form 8-K Report datedMarch 12, 2008 (File No. 000-18590) and incorporated herein by reference)

10.25          LetterAgreement between Good Times Drive Thru Inc. and CEDA Enterprises, Inc. and CEJInvestments, LLC (previously filed as Exhibit 10.2 to the registrant's Form 8-KReport dated March 12, 2008 (File No. 000-18590) and incorporated herein byreference)

10.26          Amendedand Restated Loan Agreement (previously filed as Exhibit 10.1 to theregistrant's Form 8-K Report dated July 2, 2008 (File No. 000-18590) andincorporated herein by reference)

10.27          PromissoryNote by Good Times Drive Thru Inc. and Good Times Restaurants Inc. payable toPFGI II, LLC (previously filed as Exhibit 10.2 to the registrant's Form 8-KReport dated July 2, 2008 (File No. 000-18590) and incorporated herein byreference)

10.28          Departureof Management Employees, Transfer of Development Rights and Suspension ofExpansion (previously filed in the registrant's Form 8-K Report dated June 26,2008 (File No. 000-18590) and incorporated herein by reference)

10.29          Suspensionof Development Agreement previously filed as Exhibit 10.41 to the registrant'sForm 10-KSB Report dated December 26, 2008 (File No. 000-18590) andincorporated herein by reference)

10.30          Resultsof Operations, Triggering Events and Other Events (previously filed as theregistrant's Form 8-K Report dated January 20, 2009 (File No. 000-18590) andincorporated herein by reference)

10.31          LoanAgreement, Promissory Note, Warrant, Intercreditor Agreement and FirstAmendment to Amended and Restated Promissory Note (previously filed as Exhibits4.1, 10.1, 10.2, 10.3 and 10.4 to the registrant's Form 8-K Report dated April20, 2009 (File No. 000-18590) and incorporated herein by reference)

34

10.32          Agreementbetween Good Times Restaurants Inc. and Mastodon Ventures Inc. (previouslyfiled as Exhibit 10.1 to the registrant's Form 8-K Report dated August 14, 2009(File No. 000-18590) and incorporated herein by reference)

10.33          *LetterAgreement between Good Times Restaurants Inc. and PFGI II, LLC dated December14, 2009 and filed herewith

14.1           Codeof Ethics (previously filed as Exhibit 14.1 to the registrant's Annual Reporton Form 10-KSB for the fiscal year ended September 30, 2003 (File No.000-18590) and incorporated herein by reference)

21.1           Subsidiariesof registrant (previously filed as Exhibit 21.1 to the registrant's AnnualReport on Form 10-KSB for the fiscal year ended September 30, 1998 (File No.000-18590) and incorporated herein by reference)

23.1           *Consentof HEIN & ASSOCIATES LLP

31.1           *Certificationof Chief Executive Officer pursuant to 18 U.S.C. Section 1350

31.2           *Certificationof Controller pursuant to 18 U.S.C. Section 1350

32.1           *Certificationof Chief Executive Officer and Controller pursuant to 18 U.S.C. Section 1350

*Filedherewith35

**SIGNATURES**

In accordancewith Section 13 or 15(d) of the Exchange Act, the registrant caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.

** **

**GOOD TIMES  RESTAURANTS INC.**

Date: December  29, 2009

/s/  Boyd E. Hoback

Boyd  E. Hoback

President  and Chief Executive Officer

Inaccordance with the Exchange Act, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on thedates indicated.

*/s/  Eric W. Reinhard*

* *

*/s/ Boyd E. Hoback*

Eric  W. Reinhard, Chairman

and  Chief Development Officer

Date: December 29, 2009

Boyd E. Hoback, Director 

and President and CEO

Date: December 29, 2009

*/s/ Geoffrey R. Bailey*

*/s/ Susan M. Knutson*

Geoffrey  R. Bailey, Director

Date:  December 29, 2009

Susan  M. Knutson, Controller and

Principal  Financial Officer

Date: December 29, 2009

*/s/ Ron Goodson*

*/s/ Richard J. Stark*

Ron  Goodson, Director

Date: December 29, 2009

Richard  J. Stark, Director

Date:  December 29, 2009

*/s/ David Grissen*

* *

*/s/ Alan A. Teran*

David  Grissen, Director

Date:  December 29, 2009

Alan A. Teran, Director

Date: December 29, 2009

36 |