UNITEDSTATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF1934

For thequarterly period ended December 31, 2009

OR

o TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGEACT OF 1934

CommissionFile Number: 0-18590

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) |

601CORPORATE CIRCLE, GOLDEN, CO 80401

(Addressof Principal Executive Offices, Including Zip Code)

(303) 384-1400

(Registrant'sTelephone Number, Including Area Code)

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 (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

Yes      þ  No     o

Indicate by check mark whether the registrant is a largeaccelerated filer, an accelerated filer, a non-accelerated filer or a smallerreporting company, as defined in Rule 12b-2 of the Exchange Act .

| Large accelerated filer o |  | Accelerated filer   o               |
|---------------------------|--|----------------------------------------------------|
| Non-accelerated filer o   |  | Smaller reporting company    þ |

Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).

Yes   o No   þ

As of February 16, 2010, there were 3,898,559 shares of the Registrant'scommon stock, par value $0.001 per share, issued and outstanding.

----

 

**Form10-Q**

**QuarterEnded December 31, 2009**

| ** ** | **INDEX**                                                                              | **PAGE**     |
|------------|----------------------------------------------------------------------------------------|--------------|
|            |                                                                                        |              |
|            | **PART  I - FINANCIAL INFORMATION**                                                    |              |
|            |                                                                                        |              |
| Item  1.   | Financial Statements                                                                   |              |
|            |                                                                                        |              |
|            | Condensed Consolidated Balance Sheets -                                                |              |
|            | December 31, 2009  (unaudited) and September 30, 2009                                  | 3 - 4        |
|            |                                                                                        |              |
|            | Condensed  Consolidated Statements of Operations (unaudited)                      |              |
|            | For the three  months ended December 31, 2009 and 2008                                 | 5            |
|            |                                                                                        |              |
|            | Condensed  Consolidated Statements of Cash Flow (unaudited)                            |              |
|            | For the three  months ended December 31, 2009 and 2008                                 | 6            |
|            |                                                                                        |              |
|            | Notes  to Condensed Consolidated Financial Statements                                  | 7 - 13       |
|            |                                                                                        |              |
| Item  2.   | Management's  Discussion and Analysis of Financial Condition and Results of Operations | 13 - 20      |
|            |                                                                                        |              |
| Item  3.   | Quantitative  and Qualitative Disclosures About Market Risk                            | 20           |
|            |                                                                                        |              |
| Item 4T.   | Controls  and Procedures                                                               | 20           |
|            |                                                                                        |              |
|            | **PART  II - OTHER INFORMATION**                                                       |              |
|            |                                                                                        |              |
| Item 1.    | Legal  Proceedings                                                                     | 20           |
|            |                                                                                        |              |
| Item 1A.   | Risk  Factors                                                                          | 20           |
|            |                                                                                        |              |
| Item  2.   | Unregistered  Sales of Equity Securities and Use of Proceeds                           | 20           |
|            |                                                                                        |              |
| Item  3.   | Defaults  Upon Senior Securities                                                       | 20           |
|            |                                                                                        |              |
| Item  4.   | Submission  of Matters to a Vote of Security Holders                                   | 20           |
|            |                                                                                        |              |
| Item  5.   | Other  Information.                                                                    | 20           |
|            |                                                                                        |              |
| Item  6.   | Exhibits                                                                               | 21           |
|            |                                                                                        |              |
|            | **SIGNATURES**                                                                         | 21           |
|            | ** **                                                                             |              |
|            | **CERTIFICATIONS**                                                                     | Exhibit 31.1 |
|            | ** **                                                                             | Exhibit 31.2 |
|            | ** **                                                                             | Exhibit 32.1 |

2

----

**PART I - FINANCIALINFORMATION**

**ITEM 1.            FINANCIAL STATEMENTS**

**GOOD TIMESRESTAURANTS INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

** **

**ASSETS**

|                                                                                            | **Unaudited** |        |               |
|--------------------------------------------------------------------------------------------|---------------|--------|---------------|
|                                                                                            | December 31,  |        | September 30, |
|                                                                                            | 2009          |        | 2009          |
| CURRENT  ASSETS:                                                                           |               |        |               |
|       Cash  and cash equivalents                                  | $450,000      |        | $815,000      |
|       Receivables,  net of allowance for doubtful

accounts of $0 | 136,000       |        | 122,000       |
|       Prepaid  expenses and other                                 | 57,000        |        | 32,000        |
|       Inventories                                                 | 202,000       |        | 220,000       |
|       Notes  receivable                                           | _13,000       |   | ___36,000     |
|            Total  current assets         | 858,000       |        | 1,225,000     |
|                                                                                            |               |        |               |
| PROPERTY  AND EQUIPMENT, at cost:                                                          |               |        |               |
|       Land  and building                                          | 6,598,000     |        | 6,596,000     |
|       Leasehold  improvements                                     | 4,107,000     |        | 4,107,000     |
|       Fixtures  and equipment                                     | _8,446,000    |   | _8,438,000    |
|                                                                                            | 19,151,000    |        | 19,142,000    |
|                                                                                            |          |        |          |
|       Less  accumulated depreciation and amortization             | (12,093,000)  |        | (11,853,000)  |
|                                                                                            | 7,058,000     |        | 7,288,000     |
|                                                                                       |          |   |          |
|       Assets  held for sale                                       | 1,595,000     |   | 1,595,000     |
|                                                                                       |          |   |          |
| OTHER  ASSETS:                                                                             |          |   |          |
|       Notes  receivable, net of current portion                   | 100,000       |        | 82,000        |
|       Deposits  and other assets                                  | _89,000       |        | __64,000      |
|                                                                                            | 189,000       |        | _146,000      |
|                                                                                            |               |        |               |
| TOTAL  ASSETS                                                                              | $9,700,000    |        | $10,254,000   |

### LIABILITIES AND STOCKHOLDERS' EQUITY

|  CURRENT  LIABILITIES:                                                                                        |            |        |            |
|--------------------------------------------------------------------------------------------------------------------|------------|--------|------------|
|    Current  maturities of long-term debt, net of

   discounts of  $18,000 and $0 respectively | $1,012,000 |        | $1,027,000 |
|       Accounts  payable                                                                   | 458,000    |        | 355,000    |
|       Deferred  income                                                                    | 68,000     |        | 113,000    |
|       Other  accrued liabilities                                                          | ___979,000 |        | __930,000  |
|             Total  current liabilities                      | 2,517,000  |        | 2,425,000  |
|                                                                                                                    |            |        |            |
| LONG-TERM  LIABILITIES:                                                                                            |       |   |       |
|       Debt, net of  current portion                                                       | 2,471,000  |        | 2,478,000  |
|       Deferred  liabilities                                                               | ___965,000 |        | __973,000  |
|             Total  long-term liabilities                    | 3,436,000  |        | 3,451,000  |
|                                                                                                                    |            |        |            |

 

3

See accompanyingnotes to condensed consolidated financial statements

----

**GOODTIMES RESTAURANTS INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS (Continued)**

|                                                                                                                                                                                                    | **Unaudited** |        |               |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|--------|---------------|
|                                                                                                                                                                                                    | December 31,  |        | September 30, |
|                                                                                                                                                                                                    | 2009          |   | 2009          |
| STOCKHOLDERS'  EQUITY:                                                                                                                                                                                  |               |        |               |
| Non-controlling  interest                                                                                                                                                                               | 409,000       |        | 428,000       |
| Preferred  stock, $.01 par value;                                                                                                                                                                       |               |        |               |
|             5,000,000  shares authorized, none issued                                                                                            |               |        |               |
|             and  outstanding as of September 30, 2009 and

            December  31, 2009 | -             |        | -             |
|                                                                                                                                                                                                         |               |        |               |
| Common  stock, $.001 par value; 50,000,000 shares                                                                                                                                                       |               |        |               |
|             Authorized,  3,898,559 shares issued and                                                                                             |               |        |               |
|             outstanding  as of September 30, 2009 and

            December  31, 2009     | 4,000         |        | 4,000         |
|                                                                                                                                                                                                         |               |        |               |
| Capital contributed  in excess of par value                                                                                                                                                             | 17,773,000    |        | 17,751,000    |
| Accumulated deficit                                                                                                                                                                                     | (14,439,000)  |        | (13,805,000)  |
|                   Total  stockholders' equity                                                                      | _3,747,000    |        | __4,378,000   |
|                                                                                                                                                                                                         |               |        |               |
| TOTAL  LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                             | $9,700,000    |        | $10,254,000   |

4

See accompanyingnotes to condensed consolidated financial statements

----

**GOODTIMES RESTAURANTS INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

|                                                                                                  | For the Three Months EndedDecember 31, |
|-------------------------------------------------------------------------------------------------------|----------------------------------------|
|                                                                                                  | 2009                                   |   | 2008 |
|                                                                                                  |                                   |   |   |
| NET REVENUES:                                                                                         |                                   |   |   |
|       Restaurant  sales, net                                                 | $4,870,000                             |  | $5,507,000 |
|       Franchise  revenues                                                    | __113,000                              |  | __139,000 |
|             Total  net revenues                | 4,983,000                              |  | 5,646,000 |
|                                                                                                       |                                        |  |  |
| RESTAURANT  OPERATING COSTS:                                                                          |                                   |   |   |
|       Food  and packaging costs                                              | 1,615,000                              |  | 1,855,000 |
|       Payroll and other employee benefit costs                               | 1,853,000                              |  | 2,065,000 |
|       Occupancy  and other operating costs                                   | 1,203,000                              |  | 1,204,000 |
|       New  store opening costs                                               | -                                      |  | 15,000 |
|       Depreciation  and amortization                                         | __252,000                              |  | __311,000 |
|            Total  restaurant operating costs        | 4,923,000                              |  | 5,450,000 |
|                                                                                                       |                                        |  |  |
|       General  and administrative costs                                      | 370,000                                |  | 489,000 |
|       Advertising  costs                                                     | 279,000                                |  | 315,000 |
|       Franchise  costs                                                       | 30,000                                 |  | 40,000 |
|       Gain  on sale of restaurant building                                   | __(7,000)                              |  | __(8,000) |
|                                                                                                       |                                        |  |  |
| LOSS  FROM OPERATIONS                                                                                 | (612,000)                              |  | (640,000) |
|                                                                                                       |                                        |  |  |
| OTHER  INCOME AND (EXPENSES)                                                                          |                                   |   |   |
|                                                                                                       |                                        |  |  |
|       Unrealized  income (loss) on interest rate swap                        | 10,000                                 |  | (119,000) |
|       Interest  expense, net                                                 | __(80,000)                             |  | _(41,000) |
|             Total  other income and (expenses) | __(70,000)                             |  | (160,000) |
|                                                                                                       |                                        |  |  |
| NET LOSS                                                                                              | ($682,000)                             |  | ($800,000) |
|                                                                                                  |                                   |   |   |
|       Income  from non-controlling interest                                  | 48,000                                 |  | 34,000 |
|                                                                                                  |                                   |   |   |
| NET LOSS APPLICABLE TO  COMMON SHAREHOLDERS                                                           | ($634,000)                             |  | ($766,000) |
|                                                                                                  |                                   |   |   |
| BASIC  AND DILUTED LOSS PER COMMON SHARE                                                              | $___(.16)                              |   | $___(.20) |
|                                                                                                       |                                        |  |  |
| WEIGHTED  AVERAGE COMMON SHARES AND EQUIVALENTS USED IN PER SHARE CALCULATION:                        |                                   |   |   |
|                                                                                                       |                                        |  |  |
|       BASIC  AND DILUTED                                                     | 3,898,559                              |  | 3,898,559 |

5

----

**GOODTIMES RESTAURANTS INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

|                                                                                                                                           | For the Three  Months Ended

December 31, |
|-------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------|
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                                                                    | 2009                                      |   | 2008 |
|      Net  loss applicable to common shareholders                                                                      | ($634,000)                                |  | ($766,000) |
|      Adjustments  to reconcile net loss to net cash                                                                   |                                           |  |  |
|         used in operating activities:                                                                            |                                           |  |  |
|          Depreciation  and amortization                                                           | 252,000                                   |  | 311,000 |
|          Amortization  of discount on notes payable                                               | 8,000                                     |  | - |
|          Stock  based compensation expense                                                        | 22,000                                    |  | 19,000 |
|          Unrealized  loss (gain) on interest rate swap                                            | (10,000)                                  |  | 119,000 |
|          Accretion  of deferred rent                                                              | -                                         |  | - |
|          Non-controlling  interest                                                                | (48,000)                                  |  | (34,000) |
|          Recognition  of deferred (gain) on sale of restaurant building                           | (7,000)                                   |  | (8,000) |
|          Changes  in operating assets and liabilities:                                            |                                           |  |  |
|               (Increase)  decrease in:                                   |                                           |  |  |
|                  Receivables  and other                   | (39,000)                                  |  | 6,000 |
|                  Inventories                              | 18,000                                    |  | 25,000 |
|                  Deposits  and other                      | (28,000)                                  |  | 9,000 |
|             (Decrease)  increase in:                                               |                                           |  |  |
|                  Accounts  payable                        | 103,000                                   |  | (264,000) |
|                  Accrued  liabilities and deferred income | 14,000                                    |  | (90,000) |
|              Net  cash used in operating activities                           | (349,000)                                 |  | (673,000) |
|                                                                                                                                           |                                           |  |  |
| CASH FLOWS USED IN  INVESTING ACTIVITIES                                                                                                  |                                           |  |  |
|      Payments  for the purchase of property and equipment                                                             | (19,000)                                  |  | (215,000) |
|      Loans  made to franchisees and to others                                                                         | -                                         |  | (31,000) |
|      Payments  received on loans to franchisees and to others                                                         | 5,000                                     |  | 14,000 |
|                Net  cash used in investing activities               | (14,000)                                  |  | (232,000) |
|                                                                                                                                           |                                           |  |  |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                                                                    |                                           |  |  |
|      Principal  payments on notes payable, and long-term debt                                                         | (31,000)                                  |  | (30,000) |
|      Net  Proceeds (repayments) on revolving lines of credit                                                          | -                                         |  | 320,000 |
|      Distributions, net of contributions  paid to non-controlling interests                                           | 29,000                                    |  | (13,000) |
|                Net  cash provided by (used in) financing activities | (2,000)                                   |  | 277,000 |
|                                                                                                                                           |                                           |  |  |
| NET CHANGE IN CASH AND CASH EQUIVALENTS                                                                                                   | (365,000)                                 |  | (628,000) |
|                                                                                                                                           |                                           |  |  |
| CASH AND CASH EQUIVALENTS, beginning of period                                                                                            | $815,000                                  |  | $1,414,000 |
|                                                                                                                                           |                                           |  |  |
| CASH AND CASH EQUIVALENTS, end of period                                                                                                  | $450,000                                  |  | $786,000 |
|                                                                                                                                           |                                           |  |  |
| SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION:                                                                                       |                                           |  |  |
|      Cash  paid for interest                                                                                          | $72,000                                   |  | $68,000 |

6

----

**GOOD TIMESRESTAURANTS INC. AND SUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**Note 1. Basis of Presentation**

In the opinion of management, theaccompanying unaudited condensed consolidated financial statements contain allof the normal recurring adjustments necessary to present fairly the financialposition of the Company as of December 31, 2009, the results of its operationsand its cash flows for the three month period ended December 31, 2009. Operatingresults for the three month period ended December 31, 2009 are not necessarilyindicative of the results that may be expected for the year ending September30, 2010. The condensed consolidated balance sheet as of September 30, 2009 isderived from the audited financial statements, but does not include alldisclosures required by generally accepted accounting principles.  As a result,these financial statements should be read in conjunction with the Company'sForm 10-K for the fiscal year ended September 30, 2009.

Effective October 1, 2009, we adopted new accountingstandards relating to non-controlling interests in consolidated financialstatements. The new accounting guidance established accounting and reportingstandards that require non-controlling interests to be reported as a componentof equity, changes in a parent's ownership interest while the parent retainsits controlling interest to be accounted for as equity transactions, and anyretained non-controlling equity investment upon the deconsolidation of asubsidiary to be initially measured at fair value. The adoption of this newaccounting guidance primarily resulted in moving the presentation of non-controllinginterest to the "Stockholders' Equity" section of our condensed consolidatedbalance sheet. 

**Note2. Recent Developments**

Effective January 2,2010 and as reported on Form 8k, the Company entered into an agreement to amendits loan with PFGI II LLC.  The maturity date was extended to December 31,2012, the interest rate was increased to 8.65% and monthly payments ofprincipal and interest will be payable beginning January 31, 2010, based upon a25 year amortization prior to maturity.  In connection with the agreement theCompany also issued in January 2010 112,612 warrants exercisable at $1.11. Thefair value of the warrants of $79,000 will be accredited to interest over theterm of the loan.

On August 14, 2009 andas reported on our Form 10k for the period ending September 31, 2009, weannounced that our Board of Directors has formed a Special Committee comprisedof directors Richard Stark, Alan Teran and Geoff Bailey to explore and evaluatestrategic alternatives aimed at enhancing shareholder value and explorealternatives to reduce the cost burdens of being a publicly held entity. TheCompany has hired Mastodon Ventures, Inc. to provide strategic advisoryservices and explore other strategic alternatives that will further thelong-term business prospects of the Company and provide incremental valueto its shareholders.

There canbe no assurance regarding the timing of or whether the Board will elect topursue any of the strategic alternatives it may consider, or that any suchalternatives will result in changes to the Company's plans or will beconsummated and there is no certainty that any strategic alternative willinvolve a transaction for shareholders at a share price equal to orabove the current trading price of the Company's shares, bearing inmind that the trading market for the Company's shares is relatively inactiveand that the Company has realized losses from operations during recentperiods.  The Company does not intend to provide updates or make anyfurther comment until the outcome of the process is determined or until thereare significant developments.  We anticipate that we will extend the agreement withMastodon Ventures, Inc. beyond the initial six month engagement period.

Asreported on Form 8k dated February 3, 2010, the Company entered into a loanagreement with W Capital, John T. MacDonald and Golden Bridge, LLC(collectively "the Lender"), pursuant to which the Lender made a loan of$200,000, with up to an additional $200,000 loan available through April 30,2010 (the "Loan"), to be used for restaurant marketing and other workingcapital uses of GTDT.  Eric Reinhard, Ron Goodson, David Grissen, RichardStark, and Alan Teran, who are all members of the Company's Board of Directorsand stockholders of the Company, are the sole members of Golden Bridge, LLC.However, not all members of Golden Bridge, LLC are participating in the Loan. The Company's obtaining of the Loan from the Lender and related transactionswere duly approved in advance by the Company's Board of Directors by theaffirmative vote of members thereof who did not have an interest in thetransaction.

7

----

The Loanis evidenced by a Convertible Secured Promissory Note dated February 1, 2010(the "Note") made by the Company and shall bear interest at a rate of 12% per annumon the unpaid principal balance through August 1, 2010.  The maturity date forpayment of all principal and interest on the Note is December 31, 2010. However, if and to the extent that any portion of the Note is still outstandingafter August 1, 2010, the interest rate will increase to 14% per annum from andafter August 1, 2010 until the maturity date.  All interest accrues through thematurity date.  The Loan Agreement contains customary event of defaultprovisions and a cross-default provision with respect to the loan agreement forthe Wells Fargo Bank and PFGI II, LLC loans in the event of payment default oneither of those loans.  Upon the occurrence and continuance of an event ofdefault, the Lender may declare all or part of the unpaid principal and accruedand unpaid interest on the Loan due and payable.  Any amounts not paid to theLender when due will bear interest from the due date until paid at a rate of16% per annum.

The LoanAgreement and the Note are subject to the terms of a Leasehold Deed of TrustAgreement and Security Agreement with respect to certain of GTDT's restaurantsthat were not previously pledged as collateral under the Wells Fargo Bank orPFGI II, LLC borrowings.  The Note is convertible into shares of common stockof the Company (the "Conversion Shares") at any time prior to repayment at aconversion price of 25% less than the average price of the Company's commonstock during the 20 days prior to the conversion date, provided however thatthe conversion price shall not be below $.75 per share nor above $1.08 per share(the "Conversion Price").

Inconnection with the Loan, the Company issued warrants dated February 1, 2010(the "Warrants") to the Lender which provides that the Lender may at any timefrom February 1, 2010 until two years from the date of repayment or conversionof the Loan purchase up to an aggregate of 50,000 shares of the Company'scommon stock (the "Warrant Shares") at an exercise price that is equal to theConversion Price calculation above.  If the Loan is not repaid prior to August1, 2010, the Company will issue warrants for the purchase of 50,000 additionalshares of the Company's common stock upon the same terms as the initialWarrants.  The number of Warrant Shares and the exercise price are subject tocustomary anti-dilution adjustments upon the occurrence of any stock dividends,stock splits, reverse stock splits, recapitalizations, reclassifications, stockcombinations or similar events.  

**Note3. Debt Covenant Compliance**

As reported on theform 8-K filed on January 23, 2009, we are in default of certain technical loancovenants on our note payable to Wells Fargo Bank, N.A. ("the Bank"). Thereforeall amounts owing under this facility are reflected as current in theaccompanying Condensed Consolidated Balance Sheet as of December 31, 2009. Wehave never been in payment default on the note and expect to be able to remaincurrent on payments in fiscal 2010, depending on our sales trends and cash flowfrom operations.  On February 9, 2009 we received a Reservation of Rightsletter from the Bank formally notifying us of the default of the EarningsBefore Interest Taxes and Depreciation ("EBITDA") Coverage Ratio of not lessthan 1.5 to 1.0 and the Tangible Net Worth of not less than $5,000,000 as setforth in the Credit Agreement for the period ending December 31, 2008. Theletter serves as notice that notwithstanding the foregoing events of default,the Bank is reserving all of its rights and remedies under the Credit Agreementand 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 theacceptance of payments under the Loan does not constitute a modification of theCredit Agreement 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 agree to modifyor waive any of the loan covenants or waive any of its rights or remedies underthe Credit Agreement and we would require additional financing to repay theloan balance.  The loan is secured by security agreements in the equipment offour restaurants.

**Note4. Stock-Based Compensation**

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 all years presented.Estimates of fair value are not

8

----

intended to predict actual futureevents or the value ultimately realized by the employees who receive equityawards.

Our net loss for the three monthsended December 31, 2009 and December 31, 2008 includes $22,000 and $19,000,respectively, of compensation costs related to our stock-based compensationarrangements.

During the three months ended December 31, 2009, wegranted 12,000 non-statutory stock options and 30,606 incentive stock optionsboth with exercise prices of $1.15. The per share weighted average fair value was$.85 for the non-statutory stock option grants and $.84 for the incentive stockoption grants.

In addition to the exercise and grant date prices of theawards, certain weighted average assumptions that were used to estimate thefair value of stock option grants are listed in the following table:

|                         | **Incentive Stock  Options** | **Non-Statutory Stock  Options** |
|-------------------------|------------------------------|----------------------------------|
| Expected term (years)   | **6.5 **                | 6.7                         |
| Expected volatility     | **82.4%**                    | 81.9%                            |
| Risk-free interest rate | **2.84%**                    | 2.90%                            |
| Expected dividends      | **0**                        | 0                                |

We estimate expected volatility based onhistorical weekly price changes of our common stock for a period equal to thecurrent expected term of the options. The risk-free interest rate is based onthe United States treasury yields in effect at the time of grant correspondingwith the expected term of the options. The expected option term is the numberof years we estimate that options will be outstanding prior to exerciseconsidering vesting schedules and our historical exercise patterns.

SFAS123(R) requires the cash flows resulting from the tax benefits for taxdeductions in excess of the compensation expense recorded for those options(excess tax benefits) to be classified as financing cash flows. These excesstax benefits were $0 for the three months ended December 31, 2009.

Asummary of stock option activity under our share-based compensation plan forthe three months ended December 31, 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  |  379,231   | $3.55                                |                                                              |                                |
| Granted                  |  42,606    | $1.15                                |                                                              |                                |
| Exercised                | -               |                                      |                                                              |                                |
| Forfeited                |  -         |                                      |                                                              |                                |
| Expired                  |   (24,431) | $3.12                                |                                                              |                                |
| Outstanding Dec 31, 2009 | 397,406         | $3.32                                | 6.1                                                          | $0                             |
|                          |                 |                                      |                                                              |                                |
| Exercisable Dec 31, 2009 | 274,510         | $3.77                                | 4.9                                                          | $0                             |

Asof December 31, 2009, the total remaining unrecognized compensation costrelated to unvested stock-based arrangements was $117,000 and is expected to berecognized over a period of 2.83 years.

Therewere no stock options exercised during the three months ended December 31, 2009.

**Note 5. Comprehensive Income (Loss)**

Comprehensive income includes net income or loss, changesin certain assets and liabilities that are reported directly in equity such asadjustments resulting from unrealized gains or losses on held-to-maturityinvestments and certain hedging transactions.

In May 2007, the Company entered into an interest rateswap agreement, designated as a cash flow hedge, which hedges the Company'sexposure to interest rate fluctuations on the Company's floating rate$1,100,000 term loan. The contract requires monthly settlements of thedifference between the amounts to be received and paid under the agreement, theamount of which is recognized in current earnings as interest expense.

9

----

As of December 31, 2008 and continuing through December31, 2009 we are in default of certain technical covenants on the underlyingterm loan (see note 3 above) and we have therefore recognized an unrealized gainof $10,000 for the three months ended December 31, 2009 in the accompanying CondensedConsolidated Statement of Operations. As long as the underlying loan is incovenant default we will adjust the unrealized gain or loss through the statementof operations as non-cash income or expense.

**Note6. Contingent Liabilities**

We remaincontingently liable on various land leases underlying restaurants that werepreviously sold to franchisees.  We have never experienced any losses relatedto these contingent lease liabilities, however if a franchisee defaults on thepayments under the leases, we would be liable for the lease payments as theassignor or sublessor of the lease.  Currently we have not been notified norare we aware of any leases in default by the franchisees, however there can beno assurance that there will not be in the future which could have a materialeffect on our future operating results.

**Note7. Related Party Transactions**

The Company enteredinto a loan agreement with Golden Bridge, LLC ("Golden Bridge"), pursuant towhich Golden 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 and GTDT's obtaining of the Loanfrom Golden Bridge and related transactions were duly approved in advance bythe Company's Board of Directors by the affirmative vote of members thereof whodid not have an interest in the transaction.   See Item 2, *FinancingTransactions* below for the terms of the loan.  Amounts due to relatedparties that are included in notes payable are $185,000 and $0 at December 31,2009 and 2008, respectively.

**Note8. Assets Held for Sale**

We have classified$1,595,000 as assets held for sale in the accompanying condensed consolidatedbalance sheet. These costs are related to a site in Firestone, Colorado which has been fully developed.   A sale and leaseback agreement that was undercontract in the first quarter of fiscal 2009 was terminated and the restaurantis being marketed for sale and leaseback.  The proceeds of a sale leasebacktransaction, if consummated, are required to be used for the reduction of theline of credit payable to PFGI II, LLC. The effect on our operating cash flowis not material as the interest expense on the line of credit is approximatelyequal to the proposed rental rate on a sale leaseback transaction.

**Note9. 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 wasperformed on a restaurant by restaurant basis at December 31, 2009. Assumptionsused in preparing expected cash flows were as follows: 

•        Sales projections are as follows: Fiscal 2010 sales are projected to bedown 3-5% with respect to fiscal 2009, for fiscal years 2011 to 2024 we haveused annual increases of 2% to 3%. We believe the 2% to 3% increase in theyears beyond 2010 is a reasonable expectation of growth and that it would beunreasonable to expect less growth in our sales. These increases include menuprice increases in addition to any real growth. Historically our weighted menuprices have increased 1.5% to 6% per year.

•        Our variable and semi-variable restaurant operating costs are projectedto increase proportionately with the sales increases as well as increasing anadditional 1.5% per year consistent with inflation.

•        Our other fixed restaurant operating costs are projected to increase 1.5%to 2% per year.

10

----

•        Food and packaging costs are projected to remain flat in relation to ourcurrent fiscal 2009 food and packaging costs as a percentage of sales.

•        Salvage value has been estimated on a restaurant by restaurant basisconsidering each restaurant's particular equipment package and building size.

Given the results ofour impairment analysis at December 31, 2009 we did not record any impairmentas their projected undiscounted cash flows show recoverability of their assetvalues.

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 15% 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 we conductan impairment analysis in the future we will compare actual results to ourprojections and assumptions, and to the extent our actual results do not meetexpectations, we will revise our assumptions and this could result inimpairment charges being recognized.

All of the judgmentsand assumptions made in preparing the cash flow projections are consistent withour other financial statement calculations and disclosures. The assumptionsused in the cash flow projections are consistent with other forward-lookinginformation prepared by the Company, such as those used for internal budgets,discussions with third parties, and/or reporting to management or the Board ofDirectors.

To date we have notwritten down any assets due to impairment, however projecting the cash flowsfor the impairment analysis involves significant estimates with regard to theperformance of each restaurant, and it is reasonably possible that theestimates of cash flows may change in the near term resulting in the need towrite down operating assets to fair value. If the assets are determined to beimpaired, the amount of impairment recognized is the amount by which thecarrying amount of the assets exceeds their fair value. Fair value would bedetermined using forecasted cash flows discounted using an estimated averagecost of capital and the impairment charge would be recognized in income fromoperations.

**Note 10. Fair Value Measurements**

The Company 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 generally accepted accountingprinciples and enhances disclosures about fair value measurements.

Fair value is definedas the price that would be received to sell an asset or paid to transfer aliability in an orderly transaction between market participants at themeasurement date. Valuation techniques used to measure fair value, as requiredby Topic 820 of the FASB ASC, must maximize the use of observable inputs andminimize the use of unobservable inputs.

FASB ASC 820 definesthree levels of inputs that may be used to measure fair value and requires thatthe assets or liabilities carried at fair value be disclosed by the input levelunder which they were valued. The input levels defined under FASB ASC 820 areas follows:

Level 1: Quotedmarket prices in active markets for identical assets and liabilities.

Level 2: Observableinputs other than defined in Level 1, such as quoted prices for similar assetsor liabilities; quoted prices in markets that are not active; or other inputsthat are observable or can be corroborated by observable market data forsubstantially the full term of the assets or liabilities.

Level 3: Unobservableinputs that are not corroborated by observable market data.

The following tablesummarizes financial assets and liabilities that are measured at fair value ona recurring basis as of December 31, 2009:

Level 2

Interest Rate Swapliability         $77,000

11

----

**Note 11. Income Taxes**

Weaccount for income taxes in accordance with FASB ASC 740, Income Taxes. FASBASC 740 prescribes the use of the liability method whereby deferred tax assetand liability account balances are determined based on differences between thefinancial reporting and tax bases of assets and liabilities and are measured usingthe enacted tax rates and laws that will be in effect when the differences areexpected to reverse. The Company provides a valuation allowance, if necessary,to reduce deferred 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.

Although the Companyhas not incurred interest and penalties associated with unrecognized taxbenefits; future interest and penalties associated with unrecognized taxbenefits, if any, will be recognized in income tax expense in the ConsolidatedStatements of Operations and the corresponding liability in income taxespayable or income taxes receivable, net on the Consolidated Balance Sheets.

The Company is currently not undergoing anyexaminations by any taxing jurisdictions, with the tax years for the FiscalYears Ending September 30, 2005 through 2009 remaining open to examination.

**Note12. Non-controlling Interests**

The Company adopted the provisions of FASB ASC 810, Consolidation, effectiveOctober 1, 2009. FASB ASC 810 requires non-controlling interests,previously called minority interests, to be presented as a separate item in theequity section of the consolidated balance sheet. It also requires the amountof consolidated net income or loss attributable to non-controlling interests tobe clearly presented on the face of the consolidated income statement.Additionally, Topic 810 clarifies that changes in a parent's ownership interestin a subsidiary that do not result in deconsolidation are equity transactions,and that deconsolidation of a subsidiary requires gain or loss recognition innet income based on the fair value on the deconsolidation date. Topic 810 wasapplied prospectively with the exception of presentation and disclosurerequirements, which were applied retrospectively for all periods presented, anddid not significantly change the presentation of our consolidated financialstatements.

**Note13. Subsequent Events**

The Company adopted the provisions of FASBASC 855, Subsequent Events, effective October 1, 2009.  FASB ASC855 establishes the accounting for, and disclosure of, material events thatoccur after the balance sheet date but before the financial statements areissued.  In general, these events will be recognized if the conditionexisted at the date of the balance sheet, but will not be recognized if thecondition did not exist at the balance sheet date.  Disclosure isrequired for non-recognized events if required to keep the financial statementsfrom being misleading. Subsequent events have been evaluated through February 16,2010, the date our interim financial statements were issued with the filing ofthis Quarterly Report on Form 10-Q.

**Note14. Recent Accounting Pronouncements**

In June 2009, theFASB issued FASB ASC 105, Generally Accepted Accounting Principles, whichestablishes the FASB Accounting Standards Codification as the sole source ofauthoritative generally accepted accounting principles. Pursuant to theprovisions of FASB ASC 105, the Company has updated references to GAAP in itsfinancial statements issued for the period ended December 31, 2009. Theadoption of FASB ASC 105 did not impact the Company's financial position orresults of operations.

In June 2008, theFASB issued FASB ASC 815-40, Derivatives and Hedging, that provides guidance onhow to determine if certain instruments (or embedded features) are consideredindexed to a company's own stock, including instruments similar to warrants topurchase the company's stock. FASB ASC 815-40 requires companies to use atwo-step approach to evaluate an instrument's contingent exercise provisionsand settlement provisions in determining whether the instrument is consideredto be indexed to its own stock and therefore exempt from the application ofFASB ASC 815. Although FASB ASC 815-40 was effective for our fiscal yearbeginning October 1, 2009, any outstanding instrument at the date of adoptionwill require a retrospective application of the accounting through a cumulativeeffect adjustment to retained earnings upon adoption. The adoption of FASB ASC 815-40did not impact the Company's financial position or results of operations. Therequirements of FASB ASC 815-40 will only impact future derivative or hedgingtransactions into which we may enter.

12

----

In December 2007, theFASB issued FASB ASC 805, Business Combinations, which establishes principlesand requirements for how an acquiring entity in a business combinationrecognizes and measures the assets acquired and liabilities assumed in thetransaction; establishes the acquisition-date fair value as the measurementobjective for all assets acquired and liabilities assumed; and sets thedisclosure requirements regarding the information needed to evaluate andunderstand the nature and financial effect of the business combination.  Thisaccounting pronouncement was effective for our fiscal year beginning October 1,2009.  The adoption of this guidance did not have any impact on the Company'sfinancial position or results of operations. The requirements of FASB ASC 805will only impact future business combination transactions into which we mayenter.

**Note15. Stock Transactions**

None.

**ITEM 2.      MANAGEMENT'SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**

**                  AND RESULTS OF OPERATIONS**

### General

ThisForm 10-Q contains or incorporates by reference forward-looking statementswithin the meaning of Section 27A of the Securities Act of 1933, as amended andthe disclosure of risk factors in the Company's form 10-K for the fiscal yearended September 30, 2009.  Also, documents subsequently filed by us with theSEC and incorporated herein by reference may contain forward-lookingstatements.  We caution investors that any forward-looking statements made byus are not guarantees of future performance and actual results could differmaterially from those in the forward-looking statements as a result of variousfactors, including but not limited to the following:

(I)   We compete with numerouswell established competitors who have substantially greater financial resourcesand longer operating histories than we do.  Competitors have increasinglyoffered selected food items and combination meals, including hamburgers, atdiscounted prices, and continued discounting by competitors may adverselyaffect revenues and profitability of Company restaurants.

(II)  We may benegatively impacted if we continue to experience consistent same store salesdeclines.  Same store sales comparisons will be dependent, among other things,on the success of our advertising and promotion of new and existing menuitems.  No assurances can be given that such advertising and promotions will infact be successful.

Wemay also be negatively impacted by other factors common to the restaurantindustry such as: changes in consumer tastes away from red meat and friedfoods; increases in the cost of food, paper, labor, health care, workers'compensation or energy; inadequate number of hourly paid employees; and/ordecreases in the availability of affordable capital resources.  We caution thereader that such risk factors are not exhaustive, particularly with respect tofuture filings.

*RestaurantLocations*

We currently operate and franchise atotal of fifty-one Good Times restaurants, of which forty-seven are inColorado, with forty-three in the Denver greater metropolitan area, three inColorado Springs, one in Grand Junction and one in Silverthorne. Eight of theserestaurants are "dual brand", operated pursuant to a Dual Brand Test Agreementwith Taco John's International, of which there is one in North Dakota, two in Wyoming, and five in Colorado.

|                                         | **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**            |

13

----

|                                | **As of December 31** |
|--------------------------------|-----------------------|
|                                | **2008**              | **2009** |
| Company-owned restaurants      | 21                    | 21 |
| Co-developed restaurants       | 9                     | 9 |
| Franchise operated restaurants | 22                    | 21 |
| **Total restaurants**          | **52**                | **51** |

*Fiscal 2009:* In October 2008 weopened one new company-owned restaurant in Firestone, Colorado. In December2008 a Wyoming franchisee terminated their Good Times franchise agreement inthe dual brand concept and has stopped selling Good Times products in onelocation.  Also in December 2008 a franchisee opened a new dual brandrestaurant in Sheridan, Wyoming.

*Fiscal 2010:* In October 2009 afranchisee operating a Good Times restaurant in Thornton, Colorado terminatedtheir franchise agreement and closed the restaurant.  We anticipate that we mayclose three low volume franchised restaurants in fiscal 2010. 

Thefollowing presents certain historical financial information of our operations. This financial information includes results for the three months ended December31, 2009 and results for the three months ended December 31, 2008.

**Resultsof Operations**

*NetRevenues*

Netrevenues for the three months ended December 31, 2009 decreased $663,000 (11.7%)to $4,983,000 from $5,646,000 for the three months ended December 31, 2008. Same store restaurant sales decreased $515,000 (11.4%) during the three monthsended December 31, 2009 for the restaurants that were open for the full periodsending December 31, 2009 and December 31, 2008.  Restaurants are included insame store sales after they have been open a full fifteen months and only GoodTimes restaurants are included with dual branded restaurants excluded. Restaurant sales decreased $79,000 due to four company-owned restaurants not includedin same store sales. Three are dual branded restaurants and one opened inOctober 2008.  Restaurant sales decreased $43,000 due to one non-traditionalcompany-owned restaurant not included in same store sales.

Ourfirst quarter same store restaurant sales decline of 11.4% reflects the adverseimpact the macroeconomic environment is having on consumers' discretionaryspending and the proliferation of heavy promotion of $1 value menus anddiscounting by competitors.  In addition adverse weather in both October and December2009 had a negative effect on our restaurant sales. October 2009 in Coloradowas the second coldest and fifth snowiest October on record and a late monthsnow storm caused the closure of our restaurants for most of one day.

Wehad shown same store sales growth in sixteen consecutive quarters leading intothe third quarter of fiscal 2008. Our outlook for fiscal 2010 remains cautiousas the economic pressures may continue to impact consumer spending and weanticipate that we will continue to face increased competitive pricingpressure.

Whilewe are implementing several broad product and brand initiatives during fiscal2010 to improve our core value proposition, we are not planning to implement abroader $1 menu and our sales may be adversely affected during the economicrecession.

Franchiserevenues decreased $26,000 to $113,000 from $139,000 for the three months endedDecember 31, 2008 due to a decrease in franchise royalties of $20,000 and a decreasein franchise fee income of $6,000. Same store Good Times franchise restaurantsales decreased 13.7% during the three months ended December 31, 2009 for thefranchise restaurants that were open for the full periods ending December 31,2009 and December 31, 2008. Dual branded franchise restaurant sales decreased 17.7%during the three months ended December 31, 2009, compared to the same prioryear period, primarily due to the closure of one restaurant in December 2008.

*RestaurantOperating Costs*

Restaurantoperating costs as a percent of restaurant sales were 101.1% during the threemonths ended December 31, 2009 compared to 99.0% in the sameprior year period.

14

----

Thechanges in restaurant-level costs are explained as follows:

|                                                                 |   |
|-----------------------------------------------------------------|--------|
| Restaurant-level  costs for the period ended December  31, 2008 | 99.0%  |
| Decrease  in food and packaging costs                           | (.5%)  |
| Increase  in payroll and other employee benefit costs           | .6%    |
| Increase  in occupancy and other operating costs                | 2.8%   |
| Decrease  in depreciation and amortization                      | (.5)%  |
| Decrease  in opening costs and deferred rent                    | (.3%)  |
| Restaurant-level  costs for the period ended December  31, 2009 | 101.1% |

*Food and Packaging Costs*

For the three monthsended December 31, 2009 our food and paper costs, decreased $240,000 to $1,615,000(33.2% of restaurant sales) from $1,885,000 (33.7% of restaurant sales)compared to the same prior year period.

During fiscal 2009 weexperienced a moderation in our food and packaging costs when our weighted foodand packaging costs increased approximately 2%. We took cumulative weightedmenu price increases during fiscal 2009 of approximately 2.6%.  We anticipate onlymoderate price increases for the balance of fiscal 2010 with more stablecommodity costs.

*Payroll and Other Employee BenefitCosts*

Forthe three months ended December 31, 2009 our payroll and other employee benefitcosts decreased $212,000 to $1,853,000 (38% of restaurant sales) from $2,065,000(37.5% of restaurant sales) compared to the same prior year period.

Theincrease in payroll and other employee benefit expenses as a percent ofrestaurant sales for the three months ended December 31,2009 is primarily the result of lower restaurant sales. Because payroll costs aresemi-variable in nature they increase as a percentage of restaurant sales whenthere is a decrease in restaurant sales.  

Beginningin December 2008 we reduced our labor hours allocation through increasedefficiencies and improved our sales per employee hour efficiencies on servicehours, thereby eliminating approximately $190,000 of annual payroll costs. Inaddition, beginning in March 2009 we implemented further reductions in ouremployee and other benefit costs totaling approximately $300,000 in annualcosts through the restructuring of regional supervision personnel along withother reductions in fixed employee benefit costs.

*Occupancy and Other Operating Costs*

Forthe three months ended December 31, 2009 our occupancy and other operatingcosts increased $1,000 to $1,203,000 (24.7% of restaurant sales) from $1,204,000(21.9% of restaurant sales) compared to the same prior year period.

Weexperienced increases in rent, common area maintenance fees, repairs andmaintenance costs, and property taxes compared to the same prior year periodwhich were offset by decreases in all other operating costs. Occupancy andother operating costs may increase as a percent of sales as new company-ownedrestaurants are developed due to higher rent associated with sale-leasebackoperating leases, as well as higher property taxes at those locations.

*OpeningCosts*

Forthe three months ended December 31, 2009 our new store opening costs were $0 compared to $15,000 in the same prior year period. The prior year costs are related to a new company-owned restaurant that openedin October 2008.

*Depreciationand Amortization*

Forthe three months ended December 31, 2009, our depreciation and amortization decreased$59,000 to $252,000 (5.2% of restaurant sales) from $311,000 (5.6% ofrestaurant sales) compared to the same prior year period. The decrease indepreciation and amortization for the three months ended December 31, 2009 isdue to declining depreciation expense in our aging company-owned andco-developed restaurants.

15

----

*Generaland Administrative Costs*

Forthe three months ended December 31, 2009, general and administrative costs decreased$119,000 to $370,000 (7.4% of total revenues) from $489,000 (8.7% of totalrevenues) for the same prior year period.  

Thedecrease in general and administrative costs for the three months ended December31, 2009 compared to the same prior year period is primarily attributable to decreasesin: 1) payroll and employee benefit costs of $58,000, 2) training andrecruiting expenses of $18,000 and 3) professional services of $37,000. 

*Advertising Costs*

Forthe three months ended December 31, 2009 advertising costs decreased $36,000 to$279,000 (5.7% of restaurant sales) from $315,000 (5.7% of restaurant sales)for the same prior year period.

Thedecrease in advertising costs for the three month period is primarily due tothe decrease in restaurant sales, as contributionsare made to the advertising materials fund and regional advertising cooperativebased on a percentage of sales. In addition, $9,000 of payroll and employeebenefit costs have been eliminated in the current period due to the retirementof our Vice President of Marketing in November 2008. We currently have no plansto fill the position in the immediate future.

*Franchise Costs*

For the three months ended December 31, 2009, franchisecosts decreased $10,000 to $30,000 (.6% of total revenues) from $40,000 (.7% oftotal revenues) for the same prior year period.

The decrease in franchise costs for the three monthperiod is primarily attributable to a reduction in franchise opening supportcosts compared to the same prior year period.

*Lossfrom Operations*

Wehad a loss from operations of ($612,000) in the three months ended December 31,2009 compared to a loss from operations of ($640,000) for the same prior yearperiod. The decrease in loss from operations for the three month period is dueprimarily to the decrease in net revenues offset by other matters discussed inthe "Restaurant Operating Costs", "General and AdministrativeCosts" and "Franchise Costs" sections of Item 2.

*NetLoss*

Thenet loss was ($634,000) for the three months ended December 31, 2009 comparedto a net loss of ($766,000) for the same prior year period. The change from thethree month period ended December 31, 2008 to December 31, 2009 wasattributable to the decrease in loss from operations for the three months endedDecember 31, 2009, as well as: 1) an increase in non-controlling interest incomeof $14,000 compared to the same prior year period; 2) an increase in netinterest expense of $39,000 compared to the same prior year period; and 3) adecrease in the unrealized loss related to our interest rate swap liability of$129,000 compared to the same prior year period.

**Liquidityand Capital Resources**

*Cashand Working Capital*

As of December 31,2009, we had $450,000 in cash and cash equivalents on hand.  We currently planto use the cash balance and any cash generated from operations for our workingcapital needs in fiscal 2010.  Subsequent to December 31, 2009 we secured ashort term loan of up to $400,000 to be used as additional working capital (see"Financing Transactions" below). Additionally, we may contemplate the sale orsublease of selected underperforming restaurants in fiscal 2010  

As of December 31,2009, we had a working capital deficit of $1,660,000 due primarily to theentire note payable to Wells Fargo Bank, N.A. of $816,000 shown as a currentliability due to certain loan covenant defaults that existed as of December 31,2009. We are not in payment default under the note and anticipate remainingcurrent on all principal and interest payments in fiscal 2010, subject to oursuccessfully raising additional operating capital.  We have received aForbearance and Reservation of Rights letter from Wells Fargo Bank stating thatthey are accepting current principal and interest payments and are notcurrently accelerating the note, subject to agreeing to an acceptable RequiredCorrective Action for the covenant defaults.  It is unlikely that we will havean acceptable

16

----

Required CorrectiveAction until our Earnings Before Interest Taxes and Depreciation ("EBITDA")improves.  If Wells Fargo were to accelerate the note payable, we would needadditional financing and we do not currently have a source for such financing. Additionally, we have a $77,000 current liability related to the unrealizedloss on our interest rate swap, as described in Note 10 of the Notes to the CondensedConsolidated Financial Statements above.

Due to theclassification of the entire Wells Fargo note payable as a current liabilityand the right of Wells Fargo to accelerate the required payment of the note, wedo not show the ability to fully satisfy our liabilities in the normal courseof business without raising additional capital.   It is our objective toacquire additional operating capital through debt and equity offerings and thepossible sale of existing restaurants with such funds to be used for therepayment of the Wells Fargo note and to increase our working capital.  Webelieve we will be successful in raising sufficient additional operatingcapital and in restructuring our debt obligations, however there can be noassurance that we will be successful in raising such additional funds.

In December, 2009 weentered into an agreement to extend the maturity of the PFGI II, LLC loan toDecember 31, 2012 and modified the terms of the loan to include a 25 yearamortization period with a balloon payment on December 31, 2012.  As a result,the majority of the PFGI II LLC loan is shown as a long term liability as of December31, 2009. We anticipate 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 II loanfor a sale and leaseback as conditions in the sale leaseback market improve andplan to use the net proceeds to reduce the loan.

*FinancingActivities*

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 above). As discussed above weare in default of certain loan covenants as of December 31, 2009 on this WellsFargo note, however we are not currently, and have never been, in paymentdefault under the note.

In July 2008, weentered into a $2,500,000 promissory note with an unrelated third party (PFGI II, LLC) and amended that note on April 20, 2009 extending the maturity to July 10, 2010 andagain on December 14, 2009 extending the maturity to December 31, 2012.  Thepromissory note originally constituted a revolving line-of-credit for thedevelopment of new restaurants which was advanced and repaid on a monthly basisfrom time to time.  The promissory note now constitutes a term loan withmonthly payments of principal and interest.  The loan is secured by separateleasehold deeds of trust and security agreements related to six company-ownedrestaurants and first deeds of trust on two real properties funded by the lineof credit. The total outstanding balance on the line of credit was $2,500,000at December 31, 2009.  Of the $2,500,000 outstanding balance, $1,595,000 isrelated to the construction of one company-owned restaurant in Firestone,Colorado that opened in October 2008. The fully developed restaurant iscurrently being marketed in the sale-leaseback market.  The remaining balanceis related to the purchase, entitlement and other development fees on a parcelof land in Aurora, Colorado that will be either developed into a company-ownedrestaurant, leased or sold.

On April 20, 2009 asreported on form 8-K, Good Times Restaurants Inc. (the "Company") and GoodTimes 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 BridgeLoan") to GTDT to be used for restaurant marketing and other working capitalcosts.  Eric Reinhard, Ron Goodson, David Grissen, Richard Stark, and AlanTeran, who are all members of the Company's Board of Directors and stockholdersof the Company, are the sole members of Golden Bridge.  Eric Reinhard is thesole manager of Golden Bridge.  The Company's and GTDT's obtaining of theGolden Bridge Loan and related transactions with Golden Bridge were dulyapproved in advance by the Company's Board of Directors by the affirmative voteof members thereof who did not have an interest in the transaction.

The Golden BridgeLoan is evidenced by a promissory note dated April 20, 2009 (the "Golden BridgeNote") made by the Company and GTDT, as co-makers, and bears interest at a rateof 10% per annum on the unpaid principal balance.  The Golden Bridge Noteprovides for monthly interest payments and will mature and be due and payablein full on July 10, 2010.  The commitment fee for the Golden Bridge Loan is$3,700.  The Golden Bridge Loan

17

----

Agreement containscustomary event of default provisions and a cross-default provision withrespect to the loan agreement for the PFGI II, LLC loan (as described above).

The Golden BridgeLoan 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 Intercreditor Agreementalso provides that GTDT and the Company may prepay the Golden Bridge Loan inwhole 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 the closingof the Golden Bridge Loan, borrowings under the PFGI Loan were secured byGTDT's leasehold estates and business assets with respect to certain of GTDT'srestaurants 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 connection withthe Golden Bridge Loan, the Company issued a three-year warrant dated April 20,2009 (the "Warrant") to Golden Bridge which provides that Golden Bridge may atany time from April 20, 2009 until April 20, 2012 purchase up to 92,500 sharesof the Company's common stock (the "Warrant Shares") at an exercise price of$1.15 per share.  The number of Warrant Shares and the exercise price aresubject to customary antidilution adjustments upon the occurrence of any stockdividends, stock splits, reverse stock splits, recapitalizations,reclassifications, stock combinations or similar events. The fair value of theWarrant issued was determined to be $42,000 with the following assumptions: 1)risk free interest rate of 1.27%, 2) an expected life of 3 years, and 3) anexpected dividend yield of zero. The fair value of $42,000 was charged to thenote discount and credited to Additional Paid in Capital. The note discountwill be amortized over fourteen months and charged to interest expense.

OnFebruary 2, 2010, the Company entered into a loan agreement with W Capital,John T. MacDonald and Golden Bridge, LLC (collectively  "the Lender"), pursuantto which the Lender made a loan of $200,000, with up to an additional $200,000loan available through April 30, 2010 to be used for restaurant marketing andother working capital uses.  The Loan is evidenced by a Convertible Secured PromissoryNote dated February 1, 2010 (the "Note") made by the Company and shall bearinterest at a rate of 12% per annum on the unpaid principal balance throughAugust 1, 2010.  The maturity date for payment of all principal and interest onthe Note is December 31, 2010.  However, if and to the extent that any portionof the Note is still outstanding after August 1, 2010, the interest rate willincrease to 14% per annum from and after August 1, 2010 until the maturitydate.  All interest accrues through the maturity date.  The Loan Agreementcontains customary event of default provisions and a cross-default provisionwith respect to the loan agreement for the Wells Fargo Bank and PFGI II, LLCloans in the event of payment default on either of those loans.  Upon theoccurrence and continuance of an event of default, the Lender may declare allor part of the unpaid principal and accrued and unpaid interest on the Loan dueand payable.  Any amounts not paid to the Lender when due will bear interestfrom the due date until paid at a rate of 16% per annum.  (See "Note 2 - RecentDevelopments" above for conversion and warrant features of the loan).Therepayment of the 2009 Golden Bridge Loan and the February 2, 2010 Loan willrequire additional equity or debt capital. As described above in Note 2 -Recent Developments, the Company has hired Mastodon Ventures to seek strategicalternatives and sources of capital.  There can be no assurance that we will besuccessful in raising such capital which would require us to renegotiate therepayment terms of these short term loans.

18

----

Additionalcommitments for the development of new restaurants in fiscal 2010 and beyond willdepend on the Company's sales trends, cash generated from operations and ouraccess to capital including in the sale-leaseback markets.

*CapitalExpenditures*

We do not have anyplans for any significant capital expenditures for the balance of fiscal 2010,other than normal recurring capital expenditures for existing restaurants. Additionalcommitments for the development of new restaurants in fiscal 2010 and beyondwill depend on the Company's sales trends, cash generated from operations andour access to additional capital.

*Cash Flows*

Netcash used in operating activities was $349,000 for the three months endedDecember 31, 2009. The net cash used in operating activities for the threemonths ended December 31, 2009 was the result of a net loss of ($634,000) aswell as cash and non-cash reconciling items totaling $285,000 (comprised ofdepreciation and amortization of $252,000, an unrealized gain of $10,000related to our interest rate swap liability, non-contolling interest of $48,000,an accounts payable increase of $103,000 and a net decrease in other operatingassets and liabilities of $12,000).

Net cash used in operating activitieswas $673,000 for the three months ended December 31, 2008. The net cash used in operating activities for the three months ended December 31, 2008 wasthe result of a net loss of ($766,000) as well as cash and non-cash reconcilingitems totaling $93,000 (comprised of depreciation and amortization of $311,000,an unrealized loss of $119,000 related to our interest rate swap liability, non-controllinginterest of $34,000, an accounts payable decrease of $264,000 and a netdecrease in other operating assets and liabilities of $39,000).

Netcash used in investing activities for the three months ended December 31, 2009was $14,000 which reflects payments of $19,000 for miscellaneous restaurantrelated capital expenditures and $5,000 in principal payments received on loansto franchisees.

Netcash used in investing activities for the three months ended December 31, 2008was $232,000 which reflects payments of $215,000 for the purchase of propertyand equipment (including $194,000 for new store development and $21,000 formiscellaneous restaurant related capital expenditures), $31,000 in loans madeto franchisees and $14,000 in principal payments received on loans tofranchisees.

Netcash used in financing activities for the three months ended December 31, 2009was $2,000, which includes principal payments on notes payable and long termdebt of $31,000 and receivables from non-controlling interests of $29,000.

Netcash provided by financing activities for the three months ended December 31,2008 was $277,000, which includes principal payments on notes payable and longterm debt of $30,000; an advance on our revolving line of credit of $320,000; anddistributions to non-controlling interests of $13,000.

*Contingencies*

We remaincontingently liable on various land leases underlying restaurants that werepreviously sold to franchisees.  We have never experienced any losses relatedto these contingent lease liabilities, however if a franchisee defaults on thepayments under the leases, we would be liable for the lease payments as theassignor or sublessor of the lease.  Currently we have not been notified norare we aware of any leases in default under which we are contingently liable,however there can be no assurance that there will not be in the future, whichcould have a material effect on our future operating results.

**Impactof Inflation**

Weexperienced moderation in commodity costs during fiscal 2005 and 2006 andsignificant increases in fiscal 2007 and fiscal 2008.  State increases in theminimum wage resulted in an increase in our average hourly wage of $.60 peremployee hour during fiscal 2007, approximately $.23 per employee hour infiscal 2008 and $.07 per employee hour in January 2009. We took moderate priceincreases during fiscal 2009 and plan for moderate price increases in fiscal2010, which may or may not be sufficient to recover increased commodity costsor increases in other operating expenses.

19

----

**Seasonality**

Revenuesof the Company are subject to seasonal fluctuation based primarily on weatherconditions adversely affecting restaurant sales in December, January, Februaryand March.

**ITEM3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

      Notrequired.

**ITEM4T.  CONTROLS AND PROCEDURES**

**Conclusion Regardingthe 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 period covered by this report on form 10Q, theCompany'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.

**Changes in Internal Control overFinancial Reporting**

Therehave been no significant changes in the Company's internal control overfinancial reporting that occurred during the Company's fiscal quarter ended December 31,2009 that have materially affected, or are reasonably likely to materiallyaffect, the Company's internal control over financial reporting.

**PART II - OTHERINFORMATION**

**ITEM 1.   LEGAL PROCEEDINGS**

Good Times Restaurants is subject tolegal proceedings which are incidental to its business.  These legalproceedings are not expected to have a material impact on the Company.

**ITEM 1A. RISK FACTORS**

Not required.

**ITEM 2.   UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

None.

**ITEM 3.   DEFAULTSUPON SENIOR SECURITIES**

Weare in default of certain technical loan covenants as of December 31, 2009 onour $816,000 note payable to Wells Fargo Bank, N.A. ("the Bank"). We have neverbeen in payment default on the note. 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 notwithstanding the foregoing eventsof default, the Bank is reserving all of its rights and remedies under theCredit Agreement and related agreements. The Bank is not now accelerating theLoan and is willing to continue to accept regularly scheduled payments ofprincipal and interest under the Loan.

**ITEM4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

None.

**ITEM 5.   OTHERINFORMATION**

None.

20

----

**ITEM 6.   EXHIBITS**

(a)        Exhibits. The following exhibits are furnished as part of this report:

      Exhibit No.                                    Description

*31.1     Certification of Chief ExecutiveOfficer pursuant to 18 U.S.C. Section 1350

*31.2     Certification of Controllerpursuant to 18 U.S.C. Section 1350

*32.1     Certificationof Chief Executive Officer and Controller pursuant to Section 906

*filed herewith

**SIGNATURES**

In accordance with the requirements ofthe Exchange Act, the registrant caused this report to be signed on its behalfby the undersigned, thereunto duly authorized.

|                     | **GOOD TIMES RESTAURANTS INC.**                       |
|--------------------------|-------------------------------------------------------|
| DATE:  February 16, 2010 |                                                       |
|                          | /s/ Boyd E. Hoback                                    |
|                          | Boyd E. Hoback

President and Chief Executive Officer |
|                          | * *                                              |
|                          | /s/ Susan M. Knutson                                  |
|                          | Susan M. Knutson

Controller                          |

21

----