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 March 31, 2010

OR

_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES

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   __x__         No    

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 ___ |  | Accelerated filer   ___                 |
|-----------------------------|--|---------------------------------------------------|
| Non-accelerated filer ___   |  | Smaller reporting company    __x__ |

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

Yes   _____   No  __x__

As of May17, 2010, there were 3,898,559 shares of the Registrant's common stock, parvalue $0.001 per share, issued and outstanding.

----

 

**Form10-Q**

**QuarterEnded****March 31, 2010**

| ** ** | **INDEX**                                                                              | **PAGE**     |
|------------|----------------------------------------------------------------------------------------|--------------|
|            |                                                                                        |              |
|            | **PART  I - FINANCIAL INFORMATION**                                                    |              |
|            |                                                                                        |              |
| Item  1.   | Financial Statements                                                                   |              |
|            |                                                                                        |              |
|            | Condensed Consolidated Balance Sheets -                                                |              |
|            | March  31, 2010  (unaudited) and September 30, 2009 (unaudited)                        | 3 - 4        |
|            |                                                                                        |              |
|            | Condensed  Consolidated Statements of Operations (unaudited)                      |              |
|            | For the three and six  months ended March 31, 2010 and 2009                            | 5            |
|            |                                                                                        |              |
|            | Condensed  Consolidated Statements of Cash Flow (unaudited)                            |              |
|            | For the three and six  months ended March 31, 2010 and 2009                            | 6            |
|            |                                                                                        |              |
|            | Notes  to Condensed Consolidated Financial Statements                                  | 7 - 13       |
|            |                                                                                        |              |
| Item  2.   | Management's  Discussion and Analysis of Financial Condition and Results of Operations | 13 - 22      |
|            |                                                                                        |              |
| Item  3.   | Quantitative  and Qualitative Disclosures About Market Risk                            | 22           |
|            |                                                                                        |              |
| Item 4T.   | Controls  and Procedures                                                               | 22           |
|            |                                                                                        |              |
|            | **PART  II - OTHER INFORMATION**                                                       |              |
|            |                                                                                        |              |
| Item 1.    | Legal  Proceedings                                                                     | 22           |
|            |                                                                                        |              |
| Item 1A.   | Risk  Factors                                                                          | 22           |
|            |                                                                                        |              |
| Item  2.   | Unregistered  Sales of Equity Securities and Use of Proceeds                           | 22           |
|            |                                                                                        |              |
| Item  3.   | Defaults  Upon Senior Securities                                                       | 23           |
|            |                                                                                        |              |
| Item  4.   | Submission  of Matters to a Vote of Security Holders                                   | 23           |
|            |                                                                                        |              |
| Item  5.   | Other  Information.                                                                    | 23           |
|            |                                                                                        |              |
| Item  6.   | Exhibits                                                                               | 23           |
|            |                                                                                        |              |
|            | **SIGNATURES**                                                                         | 23           |
|            | ** **                                                                             |              |
|            | **CERTIFICATIONS**                                                                     | Exhibit 31.1 |
|            | ** **                                                                             | Exhibit 31.2 |
|            | ** **                                                                             | Exhibit 32.1 |

2

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**PART I - FINANCIALINFORMATION**

**ITEM 1.            FINANCIAL STATEMENTS**

**GOOD TIMESRESTAURANTS INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

**ASSETS**

|                                                                                            |     March 31,                            |        | September 30,                                     |
|--------------------------------------------------------------------------------------------|---------------------------------------------------------|--------|---------------------------------------------------|
|                                                                                            | 2010                                                    |        | 2009                                              |
| CURRENT  ASSETS:                                                                           |                                                         |        |                                                   |
|       Cash  and cash equivalents                                  | $533,000                                                |        | $815,000                                          |
|       Receivables,  net of allowance for doubtful

accounts of $0 | 196,000                                                 |        | 122,000                                           |
|       Prepaid  expenses and other                                 | 81,000                                                  |        | 32,000                                            |
|       Inventories                                                 | 201,000                                                 |        | 220,000                                           |
|       Notes  receivable                                           |          10,000 |   |         36,000 |
|            Total  current assets         | 1,021,000                                               |        | 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                                     |     8,440,000                            |   |    8,438,000                            |
|                                                                                            | 19,145,000                                              |        | 19,141,000                                        |
|                                                                                            |                                                    |        |                                              |
|       Less  accumulated depreciation and amortization             | (12,551,000)                                            |        | (11,853,000)                                      |
|                                                                                            | 6,594,000                                               |        | 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                                  |        131,000            |        |         64,000 |
|                                                                                            |        231,000            |        |       146,000            |
|                                                                                            |                                                         |        |                                                   |
| TOTAL  ASSETS                                                                              | $9,441,000                                              |        | $10,254,000                                       |

### LIABILITIES AND STOCKHOLDERS' EQUITY

3

See accompanyingnotes to condensed consolidated financial statements

----

|  CURRENT  LIABILITIES:                                                                                                              |                                              |        |                                                    |
|------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------|--------|----------------------------------------------------|
|    Current  maturities of long-term debt, net of      discounts of $149,000 and $27,000  respectively | $1,252,000                                   |        | $1,027,000                                         |
|       Accounts  payable                                                                                         | 696,000                                      |        | 355,000                                            |
|       Deferred  income                                                                                          | 50,000                                       |        | 113,000                                            |
|       Liabilities  related to discontinued operations                                                           | 14,000                                       |        | -                                                  |
|       Other  accrued liabilities                                                                                |     1,146,000                 |        |         930,000 |
|             Total  current liabilities                                            | 3,158,000                                    |        | 2,425,000                                          |
| LONG-TERM  LIABILITIES:                                                                                                                  |                                         |   |                                               |
|       Debt, net of  current portion and net of discounts of $66,000 and $0, respectively                        | 2,399,000                                    |        | 2,478,000                                          |
|       Liabilities  related to discontinued operations                                                           | 103,000                                      |        | -                                                  |
|       Deferred  liabilities                                                                                     |        958,000 |        | 973,000                                            |
|             Total  long-term liabilities                                          | 3,460,000                                    |        | 3,451,000                                          |
|                                                                                                                                          |                                              |        |                                                    |

 

**GOOD TIMES RESTAURANTSINC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS (Continued)**

**(Unaudited)**

** **

|                                                                                                                                                                                                 | March 31,              |        | September 30,          |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------|--------|------------------------|
|                                                                                                                                                                                                 | 2010                   |   | 2009                   |
| STOCKHOLDERS'  EQUITY:                                                                                                                                                                               |                        |        |                        |
| Non-controlling  interest                                                                                                                                                                            | 389,000                |        | 428,000                |
| Preferred  stock, $.01 par value;                                                                                                                                                                    |                        |        |                        |
|             5,000,000  shares authorized, none issued                                                                                         |                        |        |                        |
|             and  outstanding as of September 30, 2009 and

            March  31, 2010 | -                      |        | -                      |
|                                                                                                                                                                                                      |                        |        |                        |
| Common  stock, $.001 par value; 50,000,000 shares                                                                                                                                                    |                        |        |                        |
|             Authorized,  3,898,559 shares issued and                                                                                          |                        |        |                        |
|             outstanding  as of September 30, 2009 and

            March  31, 2010     | 4,000                  |        | 4,000                  |
|                                                                                                                                                                                                      |                        |        |                        |
| Capital contributed  in excess of par value                                                                                                                                                          | 18,073,000             |        | 17,751,000             |
| Accumulated deficit                                                                                                                                                                                  | (15,643,000)           |        | (13,805,000)           |
|                   Total  stockholders' equity                                                                   |    2,823,000 |        |    4,378,000 |
|                                                                                                                                                                                                      |                        |        |                        |
| TOTAL  LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                          | $9,441,000             |        | $10,254,000            |

4

See accompanyingnotes to condensed consolidated financial statements

----

**GOOD TIMESRESTAURANTS INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

|                                                                                               | **Three Months Ended March 31,**                                          | **Six Months Ended March 31,** |
|----------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------|--------------------------------|
|                                                                                                    | **2010**                                                                  | ** **                     | **2009** |  | **2010** | ** ** | **2009** |
| NET  REVENUES:                                                                                     |                                                                           |                                |  |  |  |  |  |
|       Restaurant sales, net                                                    | $4,772,000                                                                |                                | $5,248,000 |  | $9,499,000 |  | $10,585,000 |
|       Franchise revenues                                                       |     111,000                                                |                           |      135,000 |          |        224,000 |          |        274,000 |
|            Total revenues                             | 4,883,000                                                                 |                                | 5,383,000 |  | 9,723,000 |  | 10,859,000 |
|                                                                                                    |                                                                           |                                |  |  |  |  |  |
| RESTAURANT  OPERATING COSTS:                                                                       |                                                                           |                                |  |  |  |  |  |
|       Food and packaging costs                                                 | 1,682,000                                                                 |                                | 1,745,000 |  | 3,248,000 |  | 3,538,000 |
|       Payroll and other employee benefit costs                                 | 1,834,000                                                                 |                                | 1,893,000 |  | 3,613,000 |  | 3,881,000 |
|       Occupancy and other operating costs                                      | 1,168,000                                                                 |                                | 1,133,000 |  | 2,322,000 |  | 2,281,000 |
|       Accretion of deferred rent                                               | -                                                                         |                                | - |  | 1,000 |  | - |
|       Opening costs                                                            | -                                                                         |                           | - |   | - |   | 15,000 |
|       Depreciation and amortization                                            |       249,000                                    |                           |      304,000 |   |       490,000 |   |       604,000 |
|            Total restaurant operating costs           | 4,933,000                                                                 |                                | 5,075,000 |  | 9,674,000 |  | 10,319,000 |
|       General and administrative costs                                         | 365,000                                                                   |                           | 402,000 |   | 735,000 |  | 891,000 |
|       Advertising costs                                                        | 286,000                                                                   |                                | 302,000 |  | 561,000 |  | 612,000 |
|       Franchise costs                                                          | 35,000                                                                    |                                | 33,000 |  | 65,000 |  | 73,000 |
|       (Gain) loss on sale of restaurant building and equipment                 |        (8,000)                              |                                |        (7,000) |  |       (15,000) |  |       (15,000) |
| LOSS  FROM OPERATIONS                                                                              | (728,000)                                                                 |                                | (422,000) |  |       (1,297,000) |  |       (1,021,000) |
|                                                                                                    |                                                                           |                                |  |  |  |  |  |
| OTHER  INCOME AND (EXPENSES):                                                                      |                                                                           |                                |  |  |  |  |  |
|       Unrealized income (loss) on interest rate swap                           | -                                                                         |                                | 3,000 |  |            10,000 |  |         (116,000) |
|       Interest income (expense), net                                           |      (161,000)                                        |                                |        (64,000) |  |    (240,000) |  |    (105,000) |
|            Total other income and (expenses)          |      (161,000)                                        |                                |        (61,000) |  |    (230,000) |  |    (221,000) |
|                                                                                                    |                                                                      |                           |   |   |   |   |   |
| LOSS  FROM CONTINUING OPERATIONS                                                                   | ($    889,000)                                             |                           | ($    483,000) |   | ($1,527,000) |   | ($1,242,000) |
|                                                                                                    |                                                                      |                           |   |   |   |   |   |
|       Loss from discontinued operations                                        |      (377,000)                                        |                                |        (28,000) |  |    (421,000) |  |         (69,000) |
|                                                                                                    |                                                                      |                           |   |   |   |   |   |
| NET  LOSS                                                                                          | ($1,266,000)                                                              |                           | ($    511,000) |   | ($1,948,000) |   | ($1,311,000) |
|       Income  from non-controlling interest                                    | 62,000                                                                    |                                | 30,000 |  | 110,000 |  | 64,000 |
| NET  LOSS APPLICABLE TO COMMON SHAREHOLDERS                                                        | ($1,204,000)                                                              |                           | ($    481,000) |   | ($1,838,000) |   | ($1,247,000) |
|                                                                                                    |                                                                      |                           |   |   |   |   |   |
| Net  loss per share - basic and diluted                                                            |                                                                      |                           |   |   |   |   |   |
| Continuing  operations                                                                             | ($            .21) |                           | ($             .12) |   | ($            .36) |   | ($            .30) |
| Discontinued  operations                                                                           | ($            .10) |                           | ($             .01) |   | ($            .11) |   | ($            .02) |
| Net  loss applicable to common shareholders                               | ($            .31) |                           | ($             .13) |   | ($            .46) |   | ($            .32) |
|                                                                                                    |                                                                           |                                |  |  |  |  |  |
| WEIGHTED  AVERAGE COMMON SHARES AND EQUIVALENTS

USED  IN PER SHARE CALCULATION: BASIC AND DILUTED | 3,898,559                                                                 |                                | 3,898,559 |  | 3,898,559 |  | 3,898,559 |

5

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**GOODTIMES RESTAURANTS INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

|                                                                                                                                                                           | For the Six Months  Ended

March 31,                         |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------|
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                                                                                                    | 2010                                                         |   | 2009 |
|      Net  loss                                                                                                                                        | ($1,948,000)                                                 |  | ($1,311,000) |
|      Adjustments  to reconcile net loss to net cash                                                                                                   |                                                              |  |  |
|         used in operating activities:                                                                                                            |                                                              |  |  |
|          Depreciation  and amortization                                                                                           | 490,000                                                      |  | 627,000 |
|          Amortization  of debt issuance costs                                                                                     | 90,000                                                       |  | - |
|          Stock  based compensation expense                                                                                        | 44,000                                                       |  | 39,000 |
|          Unrealized  loss (gain) on interest rate swap                                                                            | (10,000)                                                     |  | 116,000 |
|          Accretion  of deferred rent                                                                                              | 1,000                                                        |  | - |
|          Recognition  of deferred (gain) on sale of restaurant building                                                           | (15,000)                                                     |  | (15,000) |
|          Discontinued  operations costs                                                                                           | 358,000                                                      |  | - |
|          Changes  in operating assets and liabilities:                                                                            |                                                              |  |  |
|               (Increase)  decrease in:                                                                   |                                                              |  |  |
|                  Receivables  and other                                                   | (74,000)                                                     |  | 11,000 |
|                  Inventories                                                              | 19,000                                                       |  | 3,000 |
|                  Deposits  and other                                                      | (49,000)                                                     |  | 9,000 |
|             (Decrease)  increase in:                                                                               |                                                              |  |  |
|                  Accounts  payable                                                        | 341,000                                                      |  | (279,000) |
|                  Accrued  liabilities and deferred income                                 |         83,000            |  |          (8,000) |
|              Net  cash used in operating activities                                                           | (670,000)                                                    |  | (808,000) |
|                                                                                                                                                                           |                                                              |  |  |
| CASH FLOWS USED IN  INVESTING ACTIVITIES                                                                                                                                  |                                                              |  |  |
|      Payments  for the purchase of property and equipment                                                                                             | (24,000)                                                     |  | (245,000) |
|      Loans  made to franchisees and to others                                                                                                         | -                                                            |  | (31,000) |
|      Payments  received on loans to franchisees and to others                                                                                         |           8,000 |  |         22,000 |
|                Net  cash used in investing activities                                               | (16,000)                                                     |  | (254,000) |
|                                                                                                                                                                           |                                                              |  |  |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                                                                                                    |                                                              |  |  |
|      Principal  payments on notes payable, and long-term debt                                                                                         | (67,000)                                                     |  | (60,000) |
|      Borrowings  on notes payable and long-term debt                                                                                                  | 400,000                                                      |  | - |
|      Net  Proceeds (repayments) on revolving lines of credit                                                                                          | -                                                            |  | 320,000 |
|      Distributions, net of contributions  paid to non-controlling interests                                                                           |         71,000            |  |        (11,000) |
|                Net  cash provided by financing activities                                           |        404,000                 |  |        249,000 |
|                                                                                                                                                                           |                                                              |  |  |
| NET CHANGE IN CASH AND CASH EQUIVALENTS                                                                                                                                   | (282,000)                                                    |  | (813,000) |
|                                                                                                                                                                           |                                                              |  |  |
| CASH AND CASH EQUIVALENTS, beginning of period                                                                                                                            | $815,000                                                     |  | $1,414,000 |
|                                                                                                                                                                           |                                                              |  |  |
| CASH AND CASH EQUIVALENTS, end of period                                                                                                                                  | $     533,000                            |  | $     601,000 |
|                                                                                                                                                                           |                                                              |  |  |
| SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION:                                                                                                                       |                                                              |  |  |
|      Cash  paid for interest                                                                                                                          | $     146,000                            |  | $     133,000

  |
|      Non-cash  fair value of warrants and beneficial conversion feature issued            with debt | $     277,000                            |  | $               -

  |

** **

6

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**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 March 31, 2010, the results of its operations andits cash flows for the three and six month periods ended March 31, 2010. Operatingresults for the three and six month periods ended March 31, 2010 are notnecessarily indicative of the results that may be expected for the year endingSeptember 30, 2010. The condensed consolidated balance sheet as of September30, 2009 is derived from the audited financial statements, but does not includeall disclosures required by generally accepted accounting principles.  As aresult, these financial statements should be read in conjunction with theCompany's Form 10-K for the fiscal year ended September 30, 2009.

Effective October 1,2009, we adopted new accounting standards relating to non-controlling interestsin consolidated financial statements. The new accounting guidance establishedaccounting and reporting standards that require non-controlling interests to bereported as a component of equity, changes in a parent's ownership interestwhile the parent retains its controlling interest to be accounted for as equitytransactions, and any retained non-controlling equity investment upon thedeconsolidation of a subsidiary to be initially measured at fair value. Theadoption of this new accounting guidance primarily resulted in moving thepresentation of non-controlling interest to the "Stockholders' Equity" sectionof our condensed consolidated balance sheet. 

**Note2. Recent Developments**

*New LoanAgreement*

As reported on Form 8k dated February 3, 2010, the Company enteredinto a loan agreement 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 the Company.  At March 31, 2010 the entire $400,000 had beenadvanced to the Company. 

The Loan is evidenced by a Convertible Secured Promissory Notedated February 1, 2010 (the "Note") made by the Company and shall bear interestat a rate of 12% per annum on the unpaid principal balance through August 1,2010.  The maturity date for payment of all principal and interest on the Noteis December 31, 2010.  However, if and to the extent that any portion of theNote is still outstanding after August 1, 2010, the interest rate will increaseto 14% per annum from and after August 1, 2010 until the maturity date.  Allinterest accrues through the maturity date.  The Loan Agreement containscustomary event of default provisions and a cross-default provision withrespect to the loan agreement for the Wells Fargo Bank and PFGI II, LLC loansin the event of payment default on either of those loans.  Upon the occurrenceand continuance of an event of default, the Lender may declare all or part ofthe unpaid principal and accrued and unpaid interest on the Loan due andpayable.  Any amounts not paid to the Lender when due will bear interest fromthe due date until paid at a rate of 16% per annum.

The Loan Agreement and the Note are subject to the terms of aLeasehold Deed of Trust Agreement and Security Agreement with respect tocertain of GTDT's restaurants that were not previously pledged as collateralunder the Wells Fargo Bank or PFGI II, LLC borrowings.  The Note is convertibleinto shares of common stock of the Company (the "Conversion Shares") at anytime prior to repayment at a conversion price of 25% less than the averageprice of the Company's common stock during the 20 days prior to the conversiondate, provided however that the conversion price shall not be below $.75 per sharenor above $1.08 per share (the "Conversion Price").

In connection with the Loan, the Company issued warrants datedFebruary 1, 2010 (the "Warrants") to the Lender which provides that the Lendermay at any time from February 1, 2010 until two years from the date ofrepayment or conversion of the Loan purchase up to an aggregate of 50,000shares of the Company's common stock (the "Warrant Shares") at an exerciseprice that is equal to the Conversion Price calculation above.  If the Loan isnot repaid prior to August 1, 2010, the Company will issue warrants for thepurchase of 50,000 additional shares of the Company's common stock upon thesame terms as the initial Warrants.  The number of Warrant Shares and theexercise price are subject to customary anti-dilution adjustments upon theoccurrence of any stock dividends, stock splits, reverse stock splits,recapitalizations, reclassifications, stock combinations or similar events.

7

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Effective April 1, 2010 and as reported on Form 8k the Companyentered into a First Amendment to Loan Agreement (the "First Amendment") whichamends that certain Loan Agreement, dated February 1, 2010 (the "LoanAgreement"). As a result of regulatory concerns, the effect of the FirstAmendment was to replace Golden Bridge as a Lender Party under the LoanAgreement with W Capital and McDonald on the same terms and conditions thatapplied to Golden Bridge.  

The First Amendment provides for the repayment of the entireprincipal amount of $150,000 owed to Golden Bridge upon the Effective Date,whereby Golden Bridge will thereafter cease to be a Lender Party under the LoanAgreement and to have any rights and obligations there under, except that theCompany shall remain liable for accrued interest to Golden Bridge through theEffective Date, payable on August 1, 2010.  The First Amendment furtherprovides for additional loans to the Company by W Capital, in the additionalprincipal amount of $100,000, and McDonald, in the additional principal amountof $50,000, on the Effective Date.   

Pursuant to the First Amendment, the Secured ConvertiblePromissory Note, dated February 1, 2010, issued by the Company and GTDT toGolden Bridge, W Capital and McDonald, was cancelled in its entirety.  TheCompany issued a new Secured Convertible Promissory Note (the "New Note") to WCapital and McDonald dated April 1, 2010.  

The fair value of thewarrants of $38,000 will be accredited to interest over the term of the loan.The intrinsic value of the embedded beneficial conversion feature of $161,000will be accredited to interest over the term of the loan.

*PFGI II LLC AmendedLoan Agreement*

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 are payable beginning January 31, 2010, based upon a 25year 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 wll be accredited to interest over theterm of the loan.

*Special CommitteeFormation*

On August 14, 2009 andas reported on our Form 10k for the period ending September 30, 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 explore alternativesto reduce the cost burdens of being a publicly held entity. The Company hashired Mastodon Ventures, Inc. to provide strategic advisory services andexplore other strategic alternatives intended to 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.

**Note 3. Debt CovenantCompliance**

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 March 31, 2010. We havenever 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.

8

----

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 the loanbalance.  The loan is secured by security agreements in the equipment of fourrestaurants.

**Note 4. Discontinued Operations**

Discontinuedoperations include results attributable to our Commerce City, Colorado dual-brandedrestaurant that was closed in March 2010. The loss from discontinued operationsincludes both the current and historical results of operations, the fair valueof all future lease obligations and an impairment charge to write down thefixed assets to book value. Fixed assets of $403,000 and $403,000 of associatedaccumulated depreciation related to discontinued operations are included in theproperty and equipment of our condensed consolidated balance sheet. Current andlong-term liabilities related to discontinued operations relate to theestimated lease obligation.

Following is asummary of the costs from discontinued operations for the current and prioryear periods:

|  |  | Three Months Ended |  |  | Six Months Ended |  |
|--|--|--------------------|--|--|------------------|--|
|  |  | March 31,          |  |  | March 31,        |  |
|  |  | 2010               |  |  | 2009             |  |  | 2010 |  |  | 2009 |  |  
Results of  operations

$

43,000

$

28,000

$

87,000

$

69,000

 
Future lease  obligations, fair value

117,000

-

117,000

-

 
Asset impairment  charge

217,000

-

217,000

-

 
Loss from  discontinued operations

$

377,000

$

28,000

$

421,000

$

69,000

 
 
**Note 5. 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 intended to predict actual future events or thevalue ultimately realized by the employees who receive equity awards.

Our net loss for the six months ended March31, 2010 and March 31, 2009 includes $44,000 and $39,000, respectively, ofcompensation costs related to our stock-based compensation arrangements.

During the six months ended March 31, 2010, we granted12,000 non-statutory stock options and 30,606 incentive stock options both withexercise prices of $1.15. The per share weighted average fair value was $.85 forthe non-statutory stock option grants and $.84 for the incentive stock optiongrants.

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.

9

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 March 31, 2010.

Asummary of stock option activity under our share-based compensation plan forthe three months ended March 31, 2010 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 Mar 31, 2010

397,406

$3.32

5.9

$0

Exercisable Mar 31, 2010

274,510

$3.77

4.7

$0

Asof March 31, 2010, the total remaining unrecognized compensation cost relatedto unvested stock-based arrangements was $95,000 and is expected to berecognized over a period of 2.58 years.

Therewere no stock options exercised during the six months ended March 31, 2010.

**Note 6. 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.

As of December 31,2008 and continuing through March 31, 2010 we are in default of certaintechnical covenants on the underlying term loan (see note 3 above) and we have thereforerecognized an unrealized gain of $10,000 for the six months ended March 31,2010 in the accompanying Condensed Consolidated Statement of Operations. Aslong as the underlying loan is in covenant default we will adjust theunrealized gain or loss through the statement of operations as non-cash incomeor expense.

**Note7. 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.

**Note8. 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 March 31,2010 and 2009, respectively. 10

**Note 9. 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 whichhas been fully developed. The proceeds of a sale leaseback transaction, ifconsummated, are required to be used for the reduction of the line of creditpayable to PFGI II, LLC. The effect on our operating cash flow is not materialas the interest expense on the line of credit is approximately equal to theproposed rental rate on a sale leaseback transaction.

**Note 10. 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 March 31, 2010. Assumptions used inpreparing 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.

•        Food and packaging costs are projected to remain flat in relation to ourcurrent fiscal 2010 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 March 31, 2010 we did not record any impairment as theirprojected undiscounted cash flows show recoverability of their asset values.

Our impairmentanalysis included a sensitivity analysis with regard to the cash flowprojections that determine the recoverability of each restaurant's assets. Theresults indicate that even with a 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.

11

**Note 11. Fair ValueMeasurements**

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 March31, 2010:

Level 2

Interest Rate Swap liability          $77,000

**Note 12. 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 measuredusing the enacted tax rates and laws that will be in effect when thedifferences are expected to reverse. The Company provides a valuationallowance, if necessary, to reduce deferred tax assets to their estimatedrealizable value. The deferred tax assets are reviewed periodically forrecoverability, and valuation allowances are adjusted as necessary.  We believeit is more likely than not that the recorded deferred tax assets will berealized.

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 taxes payableor income taxes receivable, net on the Consolidated Balance Sheets.

The Company iscurrently not undergoing any examinations by any taxing jurisdictions, with thetax years for the Fiscal Years Ending September 30, 2005 through 2009 remainingopen to examination.

**Note 13. Non-controlling Interests**

The Company adoptedthe provisions of FASB ASC 810,Consolidation, effective October 1, 2009. FASB ASC 810 requires non-controllinginterests, previously called minority interests, to be presented as a separateitem in the equity section of the consolidated balance sheet. It also requiresthe amount of consolidated net income or loss attributable to non-controllinginterests to be clearly presented on the face of the consolidated incomestatement. Additionally, Topic 810 clarifies that changes in a parent'sownership interest in a subsidiary that do not result in deconsolidation areequity transactions, and that deconsolidation of a subsidiary requires gain orloss recognition in net income based on the fair value on the deconsolidationdate. Topic 810 was applied prospectively with the exception of presentationand disclosure requirements, which were applied retrospectively for all periodspresented, and did not significantly change the presentation of our consolidatedfinancial statements.

12

**Note 14. Subsequent Events**

The Company adoptedthe provisions of FASB ASC 855, Subsequent Events, effective October 1,2009.  FASB ASC 855 establishes the accounting for, and disclosureof, material events that occur after the balance sheet date but before thefinancial statements are issued.  In general, these events will berecognized if the condition existed at the date of the balance sheet, but willnot be recognized if the condition did not exist at the balance sheetdate.  Disclosure is required for non-recognized events if requiredto keep the financial statements from being misleading. Subsequent events havebeen evaluated through the date our interim financial statements were issuedwith the filing of this Quarterly Report on Form 10-Q.

**Note 15. 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 March 31, 2010. The adoptionof FASB ASC 105 did not impact the Company's financial position or results ofoperations.

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.

In December 2007, theFASB issued FASB ASC 805, Business Combinations, which establishes principlesand requirements for how an acquiring entity in a business combination recognizesand measures the assets acquired and liabilities assumed in the transaction;establishes the acquisition-date fair value as the measurement objective forall assets acquired and liabilities assumed; and sets the disclosurerequirements regarding the information needed to evaluate and understand thenature and financial effect of the business combination.  This accountingpronouncement was effective for our fiscal year beginning October 1, 2009.  Theadoption of this guidance did not have any impact on the Company's financialposition or results of operations. The requirements of FASB ASC 805 will onlyimpact future business combination transactions into which we may enter.

**Note 16. 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 withnumerous well established competitors who have substantially greater financialresources and longer operating histories than we do.  Competitors haveincreasingly offered selected food items and combination meals, includinghamburgers, at discounted prices, and continued discounting by competitors mayadversely affect 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.

13

Wemay also be negatively impacted by other factors common to the restaurant industrysuch as: changes in consumer tastes away from red meat and fried foods;increases in the cost of food, paper, labor, health care, workers' compensationor energy; inadequate number of hourly paid employees; and/or decreases in theavailability of affordable capital resources.  We caution the reader that suchrisk factors are not exhaustive, particularly with respect to future filings.

*RestaurantLocations*

Wecurrently operate and franchise a total of fifty Good Times restaurants, ofwhich forty-six are in Colorado, with forty-one in the Denver greatermetropolitan area, three in Colorado Springs, one in Grand Junction and one inSilverthorne. Seven of these restaurants are "dual brand", operated pursuant toa Dual Brand Test Agreement with Taco John's International, of which there is onein North Dakota, two in Wyoming, and four 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

2

2

Dual  brand franchised

5

2

2

1

**Total**

**50**

**41**

**5**

**1**

**2**

**1**

**As of March 31**

**2009**

**2010**

Company-owned restaurants

21

20

Co-developed restaurants

9

9

Franchise operated restaurants

22

21

**Total restaurants**

**52**

**50**

*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.  In March 2010 we closedone company-owned dual branded restaurant in Commerce City, Colorado (see Note4. above - Discontinued Operations). We anticipate that we may close up to threelow volume franchised restaurants in fiscal 2010. 

Thefollowing presents certain historical financial information of our operations. This financial information includes results for the three and six months ended March31, 2010 and results for the three and six months ended March 31, 2009.

**Resultsof Operations**

*NetRevenues*

Netrevenues for the three months ended March 31, 2010 decreased $500,000 (9.3%) to$4,883,000 from $5,383,000 for the three months ended March 31, 2009.  Samestore restaurant sales decreased $435,000 (9.4%) during the three months ended March31, 2010 for the restaurants that were open for the full periods ending March31, 2010 and March 31, 2009.  Restaurants are included in same store salesafter they have been open a full fifteen months and only Good Times restaurantsare included with dual branded restaurants excluded.  Restaurant sales decreased$11,000 due to two company-owned dual branded restaurants not included in samestore sales. Restaurant sales decreased $30,000 due to one non-traditionalcompany-owned restaurant not included in same store sales.

14

Netrevenues for the six months ended March 31, 2010 decreased $1,136,000 (10.5%)to $9,723,000 from $10,859,000 for the six months ended March 31, 2009.  Samestore restaurant sales decreased $950,000 (10.4%) during the six months ended March31, 2010 for the restaurants that were open for the full periods ending March31, 2010 and March 31, 2009.  Restaurants are included in same store salesafter they have been open a full fifteen months and only Good Times restaurantsare included with dual branded restaurants excluded.  Restaurant salesdecreased $63,000 due to three company-owned restaurants not included in samestore sales. Two are dual branded restaurants and one opened in October 2008. Restaurant sales decreased $73,000 due to one non-traditional company-ownedrestaurant not included in same store sales.

Ourfirst and second quarter same store restaurant sales declines of 11.4% and9.4%, respectively, reflect the adverse impact the macroeconomic environment ishaving on consumers' discretionary spending and the proliferation of heavypromotion of $1 value menus and discounting by competitors.  In addition adverseweather conditions in October and December 2009, and February 2010 had a negativeeffect on our restaurant sales. October 2009 in Colorado was the second coldestand fifth snowiest October on record and a late month snow storm caused theclosure of our restaurants for most of one day.

Ouroutlook for fiscal 2010 remains cautious as the economic pressures may continueto impact consumer spending and we anticipate that we will continue to faceincreased competitive pricing pressure.

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 $24,000 to $111,000 from $135,000 for the three months endedMarch 31, 2009 due to a decrease in franchise royalties. Same store Good Timesfranchise restaurant sales decreased 14% during the three months ended March31, 2010 for the franchise restaurants that were open for the full periodsending March 31, 2010 and March 31, 2009. Dual branded franchise restaurantsales decreased 23.7% during the three months ended March 31, 2010, compared tothe same prior year period, primarily due to higher opening sales in one new restaurantthat opened in December 2008.

Franchiserevenues decreased $50,000 to $224,000 from $274,000 for the six months ended March31, 2010 due to decreases in both franchise royalties and franchise fee income.Same store Good Times franchise restaurant sales decreased 12.2% during the sixmonths ended March 31, 2010 for the franchise restaurants that were open forthe full periods ending March 31, 2010 and March 31, 2009. Dual branded franchiserestaurant sales decreased 20.9% during the six months ended March 31, 2010,compared to the same prior year period.

*RestaurantOperating Costs*

Restaurantoperating costs as a percent of restaurant sales were 103.4% during the threemonths ended March 31, 2010 compared to 96.7% in the same prior year period andwere 101.8% during six month period ended March 31, 2010 compared to 97.5% inthe same prior year period.

Thechanges in restaurant-level costs are explained as follows:

Three  Months Ended

March  31, 2010

Six Months  Ended

March  31, 2010

Restaurant-level  costs for the period ended March 31, 2009

96.7%

97.5%

Increase  in food and packaging costs

2.0%

.7%

Increase  in payroll and other employee benefit costs

2.4%

1.4%

Increase  in occupancy and other operating costs

2.9%

2.9%

Increase (decrease)  in depreciation and amortization

(.6%)

(.6%)

Decrease  in opening costs and deferred rent

0%

(.1%)

Restaurant-level costs for the  period ended March 31, 2010

103.4%

101.8%

*Food and Packaging Costs*

For the three monthsended March 31, 2010 our food and paper costs, decreased $63,000 to $1,682,000(35.2% of restaurant sales) from $1,745,000 (33.3% of restaurant sales)compared to the same prior year period.

For the six monthsended March 31, 2010 our food and paper costs, decreased $290,000 to $3,248,000(34.2% of restaurant sales) from $3,538,000 (33.4% of restaurant sales)compared to the same prior year period.

15

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%.

During the threemonths ended March 31, 2010 we experienced an increase in our weighted averagefood and packaging costs of 5.7%, including significant increases in beef,bacon and soda syrup. We anticipate continued upward pressure on our commoditycosts for the balance of fiscal 2010. We are implementing an approximately 3.8%weighted average menu price increase in May 2010, however we anticipate thatthe effect of the menu price increase to our restaurant sales will be offset bythe implementation of price promotions.

*Payroll and Other Employee BenefitCosts*

Forthe three months ended March31, 2010 our payroll andother employee benefit costs decreased $59,000 to $1,834,000 (38.4% ofrestaurant sales) from $1,893,000 (36.1% of restaurant sales) compared to thesame prior year period.

Forthe six months ended March31, 2010 our payroll andother employee benefit costs decreased $268,000 to $3,613,000 (38% ofrestaurant sales) from $3,881,000 (36.7% of restaurant sales) compared to thesame prior year period.

Theincrease in payroll and other employee benefit expenses as a percent ofrestaurant sales for the three and six month periods ended March 31, 2010 is primarily the result of lowerrestaurant sales. Becausepayroll costs are semi-variable in nature they increase as a percentage ofrestaurant sales when there 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 March 31, 2010 our occupancy and other operating costs increased$35,000 to $1,168,000 (24.5% of restaurant sales) from $1,133,000 (21.6% of restaurantsales) compared to the same prior year period.

Forthe six months ended March 31, 2010 our occupancy and other operating costs increased$41,000 to $2,322,000 (24.4% of restaurant sales) from $2,281,000 (21.5% ofrestaurant sales) compared to the same prior year period.

Forthe three and six month periods ended March 31, 2010 we experienced increasesin rent, utility costs, repairs and maintenance costs, and property taxescompared to the same prior year period, however these increases were partially offsetby decreases in all other operating costs. Occupancy and other operating costs mayincrease as a percent of sales as new company-owned restaurants are developeddue to higher rent associated with sale-leaseback operating leases, as well ashigher property taxes at those locations.

*OpeningCosts*

Forthe three months ended March 31, 2010 and March 31, 2009 our new store openingcosts were $0. For the six months ended March 31, 2010our new store opening costs were $0 compared to $15,000 in the same prior yearperiod. The prior year costs are related to a new company-owned restaurant thatopened in October 2008.

*Depreciationand Amortization*

Forthe three months ended March31, 2010, ourdepreciation and amortization decreased $55,000 to $249,000 (5.2% of restaurantsales) from $304,000 (5.8% of restaurant sales) compared to the same prior yearperiod.

Forthe six months ended March31, 2010, ourdepreciation and amortization decreased $114,000 to $490,000 (5.2% ofrestaurant sales) from $604,000 (5.7% of restaurant sales) compared to the sameprior year period.

Thedecrease in depreciation and amortization for the three and six month periodsended March 31, 2010 is due to declining depreciationexpense in our aging company-owned and co-developed restaurants.

* *

16

*Generaland Administrative Costs*

Forthe three months ended March31, 2010, general andadministrative costs decreased $37,000 to $365,000 (7.5% of total revenues)from $402,000 (7.5% of total revenues) for the same prior year period.

Thedecrease in general and administrative costs for the three months ended March 31, 2010 compared to the same prior yearperiod is primarily attributable to decreases in: 1) payroll and employeebenefit costs of $30,000 and 2) professional services of $14,000.

Forthe six months ended March31, 2010, general andadministrative costs decreased $156,000 to $735,000 (7.6% of total revenues)from $891,000 (8.2% of total revenues) for the same prior year period. 

Thedecrease in general and administrative costs for the six months ended March 31, 2010 compared to the same prior yearperiod is primarily attributable to decreases in: 1) payroll and employeebenefit costs of $87,000, 2) training and recruiting expenses of $18,000 and 3)professional services of $51,000. 

*Advertising Costs*

Forthe three months ended March31, 2010 advertisingcosts decreased $16,000 to $286,000 (6% of restaurant sales) from $302,000 (5.8%of restaurant sales) for the same prior year period.

Forthe six months ended March31, 2010 advertising costsdecreased $51,000 to $561,000 (5.9% of restaurant sales) from $612,000 (5.8% ofrestaurant sales) for the same prior year period.

Thedecrease in advertising costs for the three and six month periods is primarilydue to the decrease in restaurant sales, as contributions are made to the advertising materials fundand regional advertising cooperative based on a percentage of sales. Inaddition, for the six month period ended March 31, 2010 $9,000 of payroll andemployee benefit costs have been eliminated in the current period due to theretirement of our Vice President of Marketing in November 2008. We currentlyhave no plans to fill the position in the immediate future.

*Franchise Costs*

For the three months ended March 31, 2010, franchisecosts increased $2,000 to $35,000 (.7% of total revenues) from $33,000 (.6% oftotal revenues) for the same prior year period.

For the six months ended March 31, 2010, franchise costs decreased$8,000 to $65,000 (.7% of total revenues) from $73,000 (.7% of total revenues)for the same prior year period. The decrease in franchise costs for the sixmonth period is primarily attributable to a reduction in franchise openingsupport costs compared to the same prior year period.

*Lossfrom Operations*

Wehad a loss from operations of ($728,000) in the three months ended March 31, 2010compared to a loss from operations of ($422,000) for the same prior yearperiod.

Wehad a loss from operations of ($1,297,000) in the six months ended March 31, 2010compared to a loss from operations of ($1,021,000) for the same prior yearperiod.

Theincrease in loss from operations for the three and six month periods 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.

*Lossfrom Continuing Operations*

Thenet loss from continuing operations was ($889,000) for the three months ended March31, 2010 compared to a net loss from continuing operations of ($483,000) forthe same prior year period. The change from the three month period ended March31, 2009 to March 31, 2010 was attributable to the increase in loss fromoperations for the three months ended March 31, 2010, as well as: 1) an increasein net interest expense of $97,000 compared to the same prior year period; and 2)a decrease in the unrealized gain related to our interest rate swap liabilityof $3,000 compared to the same prior year period.  Net interest expense for thethree months ended March 31, 2010 includes non-cash amortization of debtissuance costs of $81,000 related to: 1) the extension of the PFGI II loan inJanuary, 2010; and 2) the loan agreement with W Capital, John T. MacDonald entered into in February 2010. (See"Note 2. Recent Developments" of Item 1 above).

17

Thenet loss from continuing operations was ($1,527,000) for the six months ended March31, 2010 compared to a net loss from continuing operations of ($1,242,000) forthe same prior year period. The change from the six month period ended March31, 2009 to March 31, 2010 was attributable to the increase in loss fromoperations for the six months ended March 31, 2010, as well as: 1) an increasein net interest expense of $135,000 compared to the same prior year period; and2) an increase in the unrealized gain related to our interest rate swapliability of $126,000 compared to the same prior year period. Net interestexpense for the six months ended March 31, 2010 includes non-cash amortizationof debt issuance costs of $90,000 related to: 1) the extension of the PFGI IIloan in January, 2010; 2) the loan agreement with W Capital, John T. MacDonald entered into in February 2010; and 3)the loan agreement with Golden Bridge LLC entered into in April, 2009. (See"Note 2. Recent Developments" of Item 1 above)

*Lossfrom Discontinued Operations*

Theloss from discontinued operations for the three and six month periods endedMarch 31, 2010 and 2009 include results attributable to our Commerce City, Coloradodual-branded restaurant that was closed in March 2010. The three and six monthperiods ended March 31, 2010 include the results of operations, the fair valueof all future lease obligations and an impairment charge to write down thefixed assets to book value. The three and six month periods ended March 31,2009 represent the results of operations.

**Liquidityand Capital Resources**

*Cashand Working Capital*

As of March 31, 2010,we had $533,000 in cash and cash equivalents on hand.  We currently plan to usethe cash balance and any cash generated from operations for our working capitalneeds in fiscal 2010.  In February, 2010 we secured a short term loan of$400,000 to be used as working capital (see "Financing Transactions" below).Additionally, we may contemplate the sale or sublease of selected underperformingrestaurants in fiscal 2010  

As of March 31, 2010,we had a working capital deficit of $2,137,000 due in part to the entire notepayable to Wells Fargo Bank, N.A. of $786,000 shown as a current liability dueto certain loan covenant defaults that existed as of March 31, 2010. We are notin payment default under the note and anticipate remaining current on allprincipal and interest payments in fiscal 2010, subject to our successfullyraising additional operating capital.  We have received a Forbearance andReservation of Rights letter from Wells Fargo Bank stating that they areaccepting current principal and interest payments and are not currentlyaccelerating the note, subject to agreeing to an acceptable Required CorrectiveAction for the covenant defaults.  It is unlikely that we will have anacceptable Required Corrective Action until our Earnings Before Interest Taxesand Depreciation ("EBITDA") improves.  If Wells Fargo were to accelerate thenote payable, we would need additional financing and we do not currently have asource for such financing.  Additionally, we have a $77,000 current liabilityrelated to the unrealized loss on our interest rate swap, as described in Note 10of the Notes to the Condensed Consolidated Financial Statements above. We havea current liability of approximately $450,000 related to accrued property taxeswhich will be paid out of cash generated from operations through the end offiscal 2010.

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 fundsparticularly if we are unable to reverse our current negative same store sales trends.If we are unable to raise additional operating capital during the remainder offiscal 2010 we may not be able to satisfy our liabilities as they come due.

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 March31, 2010. 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.

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*FinancingActivities*

***Wells Fargo NotePayable***

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 March 31, 2010 on this WellsFargo note, however we are not currently, and have never been, in paymentdefault under the note.

***PFGI II LLCPromissory 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 promissory note was $2,495,000at March 31, 2010.  Of the $2,495,000 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 held for sale in the sale-leaseback market.  The remainingbalance is related to the purchase, entitlement and other development fees on aparcel of land in Aurora, Colorado that will be either developed into acompany-owned restaurant, leased or sold.

In connection withthe PFGI II, LLC amendment in December, 2009, the Company issued a three-yearwarrant dated January 2, 2010 (the "Warrant") to PFGI II, LLC which providesthat PFGI II, LLC may at any time from January 2, 2010 until January 2, 2013purchase up to 112,613 shares of the Company's common stock (the "WarrantShares") at an exercise price of $1.11 per share.  The number of Warrant Sharesand the exercise price are subject to customary anti-dilution adjustments uponthe occurrence of any stock dividends, stock splits, reverse stock splits,recapitalizations, reclassifications, stock combinations or similar events. Thefair value of the Warrant was derived through the application of theBlack-Scholes option pricing model. The fair value of the Warrant issued wasdetermined to be $82,000 using the following assumptions: 1) risk free interestrate of 1.7%, 2) an expected life of 3 years, and 3) an expected dividend yieldof zero. The fair value of $82,000 was charged to the note discount andcredited to Additional Paid in Capital. The note discount will be amortizedover thirty-six months and charged to interest expense. Amortization of thedebt discount included in interest expense for the three and six months endedMarch 31, 2010 was $7,000 for both periods.

***Golden Bridge LoanAgreement***

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 Bridge Loan")to GTDT to be used for restaurant marketing and other working capital costs. Eric Reinhard, Ron Goodson, David Grissen, Richard Stark, and Alan Teran, whoare all members of the Company's Board of Directors and stockholders of theCompany, are the sole members of Golden Bridge.  Eric Reinhard is the solemanager of Golden Bridge.  The Company's and GTDT's obtaining of the GoldenBridge Loan and related transactions with Golden Bridge were duly approved inadvance by the Company's Board of Directors by the affirmative vote of membersthereof who did not have an interest in the transaction.

The 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 was$3,700.  The Golden Bridge Loan Agreement contains customary event of defaultprovisions and a cross-default provision with respect to the loan agreement forthe PFGI II, LLC loan (as described above).

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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").  Under the Intercreditor Agreement,PFGI and Golden Bridge agreed that, upon any payments of principal or intereston the Golden Bridge Loan or the PFGI Loan by GTDT, PFGI and Golden Bridgeshall each be entitled to its pro rata share of such payments in the amount of93.1% for PFGI and 6.9% for Golden Bridge.  The Intercreditor Agreement alsoprovides that GTDT and the Company may prepay the Golden Bridge Loan in wholeor in part with the prior consent of PFGI, and that any other indebtedness ofthe Company or GTDT to PFGI or Golden Bridge shall be subordinate in paymentand lien priority to the Golden Bridge Loan and the PFGI Loan to the extent ofthe proceeds of the collateral.  Under the Intercreditor Agreement, all moneyreceived from any foreclosure on the collateral securing the PFGI Loan shall beapplied to PFGI and Golden Bridge for their expenses related to such event andthen on a pari passu basis to PFGI and Golden Bridge in accordance with theirrespective 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 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 anti-dilution adjustments upon the occurrence of any stockdividends, stock splits, reverse stock splits, recapitalizations,reclassifications, stock combinations or similar events. The fair value of theWarrant was derived through the application of the Black-Scholes option pricingmodel. The fair value of the Warrant issued was determined to be $42,000 withthe following assumptions: 1) risk free interest rate of 1.27%, 2) an expectedlife of 3 years, and 3) an expected dividend yield of zero. The fair value of$42,000 was charged to the note discount and credited to Additional Paid inCapital. The note discount will be amortized over fourteen months and chargedto interest expense. Amortization of the debt discount included in interestexpense for the three and six months ended March 31, 2010 was $8,000 and$16,000, respectively.

***New LoanAgreement***

On February 2, 2010, as reported on form 8-K, 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. At March 31, 2010 the entire $400,000 had beenadvanced to the Company. The loan agreement was amended on April 1, 2010, asreported on form 8-K. (See "Note 2 - Recent Developments" above)

The Loan is evidenced by a Convertible Secured Promissory Notedated February 1, 2010 (the "Note") made by the Company and shall bear interestat a rate of 12% per annum on the unpaid principal balance through August 1,2010.  The maturity date for payment of all principal and interest on the Noteis December 31, 2010.  However, if and to the extent that any portion of theNote is still outstanding after August 1, 2010, the interest rate will increaseto 14% per annum from and after August 1, 2010 until the maturity date.  Allinterest accrues through the maturity date.  The Loan Agreement containscustomary event of default provisions and a cross-default provision withrespect to the loan agreement for the Wells Fargo Bank and PFGI II, LLC loansin the event of payment default on either of those loans.  Upon the occurrenceand continuance of an event of default, the Lender may declare all or part ofthe unpaid principal and accrued and unpaid interest on the Loan due andpayable.  Any amounts not paid to the Lender when due will bear interest fromthe due date until paid at a rate of 16% per annum. The repayment of the 2009Golden Bridge Loan and the February 2, 2010 Loan will require additional equityor debt capital. As described above in Note 2 - Recent Developments, theCompany has hired Mastodon Ventures to seek strategic alternatives and sourcesof capital.  There can be no assurance that we will be successful in raisingsuch capital which would require us to renegotiate the repayment terms of theseshort term loans.

The Loan Agreement and the Note are subject to the terms of aLeasehold Deed of Trust Agreement and Security Agreement with respect tocertain of GTDT's restaurants that were not previously pledged as collateralunder the Wells Fargo Bank or PFGI II, LLC borrowings.  The Note is convertibleinto shares of common stock of the Company (the "Conversion Shares") at anytime prior to repayment at a conversion price of 25% less than the averageprice of the Company's common stock during the 20 days prior to the conversiondate, provided however that the conversion price shall not be below $.75 pershare nor above $1.08 per share (the "Conversion Price").

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Inaccordance with FASB ASC 470-20, Debt with Conversion and Other Options, the intrinsic value of the embedded beneficial conversionfeature was determined to be $161,000. The value of $161,000 was charged tonote discounts and credited to Additional Paid in Capital. The value will beamortized over six months and charged to interest expense. Amortizationof the beneficial conversion feature included in interest expense for the threeand six months ended March 31, 2010 was $53,000 for both periods.

In connection with the Loan, the Company issued warrants datedFebruary 1, 2010 (the "Warrants") to the Lender which provides that the Lendermay at any time from February 1, 2010 until two years from the date ofrepayment or conversion of the Loan purchase up to an aggregate of 50,000shares of the Company's common stock (the "Warrant Shares") at an exerciseprice that is equal to the Conversion Price calculation above.  If the Loan isnot repaid prior to August 1, 2010, the Company will issue warrants for thepurchase of 50,000 additional shares of the Company's common stock upon thesame terms as the initial Warrants.  The number of Warrant Shares and theexercise price are subject to customary anti-dilution adjustments upon theoccurrence of any stock dividends, stock splits, reverse stock splits,recapitalizations, reclassifications, stock combinations or similar events. The fair value of theWarrants was derived through the application of the Black-Scholes optionpricing model. The fair value of the Warrants issued was determined to be $38,000with the following assumptions: 1) risk free interest rate of 1.41%, 2) anexpected life of 2.5 years, and 3) an expected dividend yield of zero. The fairvalue of $38,000 was charged to the note discount and credited to AdditionalPaid in Capital. The note discount will be amortized over six months andcharged to interest expense. Amortization of the debt discount included ininterest expense for the three and six months ended March 31, 2010 was $13,000 forboth periods.

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 $670,000 for the six months ended March31, 2010. The net cash used in operating activities for the six months ended March31, 2010 was the result of a net loss of ($1,948,000) as well as cash andnon-cash reconciling items totaling $1,278,000 (comprised of depreciation andamortization of $580,000, stock based compensation expense of $44,000, discontinuedoperations costs of $358,000 an accounts payable increase of $341,000 and a netdecrease in other operating assets and liabilities of $45,000).

Netcash used in operating activities was $808,000 for the six months ended March31, 2009. The net cash used in operating activities for the six months ended March31, 2009 was the result of a net loss of ($1,311,000) as well as cash andnon-cash reconciling items totaling $503,000 (comprised of depreciation andamortization of $627,000, an unrealized loss of $116,000 related to ourinterest rate swap liability, an accounts payable decrease of $279,000 and anet increase in other operating assets and liabilities of $39,000).

Netcash used in investing activities for the six months ended March 31, 2010 was $16,000which reflects payments of $24,000 for miscellaneous restaurant related capitalexpenditures and $8,000 in principal payments received on loans to franchisees.

Netcash used in investing activities for the six months ended March 31, 2009 was $254,000which reflects payments of $245,000 for the purchase of property and equipment(including $205,000 for new store development and $40,000 for miscellaneousrestaurant related capital expenditures), $31,000 in loans made to franchiseesand $22,000 in principal payments received on loans to franchisees.

Netcash provided by financing activities for the six months ended March 31, 2010was $404,000, which includes principal payments on notes payable and long termdebt of $67,000, borrowings on notes payable of $400,000 and receivables from non-controllinginterests of $71,000.

Netcash provided by financing activities for the six months ended March 31, 2009was $249,000, which includes principal payments on notes payable and long termdebt of $60,000; an advance on our revolving line of credit of $320,000; and distributionsto minority interests in partnerships of $11,000.

* *

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*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.

**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 March 31,2010 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.

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**ITEM 3.   DEFAULTSUPON SENIOR SECURITIES**

Weare in default of certain technical loan covenants as of March 31, 2010 onour $786,000 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.

** **

**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:  May 17, 2010

/s/ Boyd E. Hoback

Boyd E. Hoback

President and Chief Executive Officer

* *

/s/ Susan M. Knutson

Susan M. Knutson

Controller

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