| ** **

** **

**UNITED STATES**                                              |
|----------------------------------------------------------------------------------------|
| **SECURITIES AND EXCHANGE COMMISSION**                                                 |
| **WASHINGTON, D.C. 20549**                                                             |
|                                                                                        |
| **FORM 10-Q**                                                                          |
| (Mark One)                                                                             |
|                                                                                        |
| [x]  QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE |
| ACT OF 1934                                                                            |
|                                                                                        |
| For the quarterly period ended December  31, 2011                                      |
|                                                                                        |
| OR                                                                                     |
|                                                                                        |
| [  ]  TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES   |
| EXCHANGE ACT OF 1934                                                                   |
| Commission File Number: 0-18590                                                        |
|                                                                                        |
| **GOOD TIMES RESTAURANTS, INC**.                                                       |
| (Exact Name of Registrant as Specified  in Its Charter)                                |
| NEVADA                                                          |  | 84-1133368                              |
|-----------------------------------------------------------------|--|-----------------------------------------|
| (State or Other Jurisdiction of

Incorporation or Organization) |  | (I.R.S. Employer Identification Number) |
| 601 CORPORATE CIRCLE, GOLDEN, CO 80401                        |
|---------------------------------------------------------------|
| (Address of Principal Executive Offices,  Including Zip Code) |
| (303) 384-1400                                                |
| (Registrant's Telephone Number,  Including Area Code)         |
|                                                               |
| Indicate by  check mark whether the registrant: (1) has filed all reports required to be  filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during  the preceding 12 months (or for such shorter period that the registrant was  required to file such reports), and (2) has been subject to such filing  requirements for the past 90 days. | Yes [x] | No [  ] |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|--------------|
| Indicate by  check mark whether the registrant is a large accelerated filer, an  accelerated filer, a non-accelerated filer or a smaller reporting 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 February  14, 2012, there were 2,726,214 shares of the Registrant's common stock, par  value $0.001 per share, issued and outstanding. |
|----------------------------------------------------------------------------------------------------------------------------------------------|

 

----

**Form 10-Q**

**Quarter Ended December 31,2011**
| ** ** | **INDEX**                                                                                                          | **PAGE** |
|------------|--------------------------------------------------------------------------------------------------------------------|----------|
|            |                                                                                                                    |          |
|            | **PART I - FINANCIAL INFORMATION**                                                                                 |          |
|            |                                                                                                                    |          |
| Item 1.    | Financial  Statements                                                                                              | 3 - 6    |
|            |                                                                                                                    |          |
|            | Condensed  Consolidated Balance Sheets (unaudited) - December  31, 2011  and September 30, 2011               | 3 - 4    |
|            |                                                                                                                    |          |
|            | Condensed Consolidated Statements of Operations  (unaudited) for the three months ended December 31,  2011and 2010 | 5        |
|            |                                                                                                                    |          |
|            | Condensed Consolidated Statements of Cash Flow  (unaudited) for the three months ended December 31,  2011and 2010  | 6        |
|            |                                                                                                                    |          |
|            | Notes to Condensed  Consolidated Financial Statements                                                              | 7 - 12   |
|            |                                                                                                                    |          |
| Item 2.    | Management's Discussion and  Analysis of Financial Condition and Results of Operations                             | 12 - 19  |
|            |                                                                                                                    |          |
| Item 3.    | Quantitative and  Qualitative Disclosures About Market Risk                                                        | 19       |
|            |                                                                                                                    |          |
| Item  4T.  | Controls and Procedures                                                                                            | 19       |
|            |                                                                                                                    |          |
|            | **PART II - OTHER INFORMATION**                                                                                    |          |
|            |                                                                                                                    |          |
| Item 1.    | Legal Proceedings                                                                                                  | 20       |
|            |                                                                                                                    |          |
| Item  1A.  | Risk Factors                                                                                                       | 20       |
|            |                                                                                                                    |          |
| Item 2.    | Unregistered Sales of  Equity Securities and Use of Proceeds                                                       | 20       |
|            |                                                                                                                    |          |
| Item 3.    | Defaults Upon Senior  Securities                                                                                   | 20       |
|            |                                                                                                                    |          |
| Item 4.    | (Removed and reserved)                                                                                             | 20       |
|            |                                                                                                                    |          |
| Item 5.    | Other Information.                                                                                                 | 20       |
|            |                                                                                                                    |          |
| Item 6.    | Exhibits                                                                                                           | 20       |
|            |                                                                                                                    |          |
|            | **SIGNATURES**                                                                                                     | 20       |
|            | ** **                                                                                                         |          |
|            | **CERTIFICATIONS**                                                                                                 |          |
|            | ** **                                                                                                         |          |
|            | ** **                                                                                                         |          |

2

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**PART I. - FINANCIAL INFORMATION**

**ITEM 1.                FINANCIALSTATEMENTS**

**GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

**ASSETS**
|                                                                                                                                                                                    | **December 31,**                           |  | **September 30,**                          |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------|--|--------------------------------------------|
|                                                                                                                                                                                    | **2011**                                   |  | **2011**                                   |
| CURRENT ASSETS:                                                                                                                                                                    |                                            |  |                                            |
|         Cash and cash  equivalents                                                                                                              | $758,000                                   |  | $847,000                                   |
|         Receivables, net of  allowance for doubtful accounts of $0                                                                              | 71,000                                     |  | 106,000                                    |
|         Prepaid expenses  and other                                                                                                             | 32,000                                     |  | 47,000                                     |
|         Inventories                                                                                                                             | 187,000                                    |  | 191,000                                    |
|         Notes receivable                                                                                                                        |        4,000 |  |        5,000 |
|         Total current  assets                                                                                                                   | 1,052,000                                  |  | 1,196,000                                  |
|                                                                                                                                                                                    |                                            |  |                                            |
| PROPERTY AND EQUIPMENT, at  cost:                                                                                                                                                  |                                            |  |                                            |
|         Land and building                                                                                                                       | 6,716,000                                  |  | 6,969,000                                  |
|         Leasehold improvements                                                                                                                  | 3,564,000                                  |  | 3,617,000                                  |
|         Fixtures and  equipment                                                                                                                 |   7,535,000                           |  |   7,669,000                           |
|                                                                                                                                                                                    | 17,815,000                                 |  | 18,255,000                                 |
|                                                                                                                                                                                    |                                            |  |                                            |
|         Less accumulated  depreciation and amortization                                                                                         | ( 12,526,000 )                             |  | ( 12,533,000 )                             |
|                                                                                                                                                                                    | 5,289,000                                  |  | 5,722,000                                  |
|                                                                                                                                                                                    |                                            |  |                                            |
| OTHER ASSETS:                                                                                                                                                                      |                                            |  |                                            |
|         Notes receivable,  net of current portion                                                                                               | 17,000                                     |  | 10,000                                     |
|         Deposits and other  assets                                                                                                              | 74,000                                     |  | 71,000                                     |
|                                                                                                                                                                                    | 91,000                                     |  | 81,000                                     |
|                                                                                                                                                                                    |                                            |  |                                            |
| TOTAL ASSETS                                                                                                                                                                       | $6,432,000                                 |  | $6,999,000                                 |
| **LIABILITIES AND STOCKHOLDERS' EQUITY**                                                                                                                                           |
|  CURRENT LIABILITIES:                                                                                                                                                         |                                            |  |                                            |
|         Current maturities of long-term debt, net of  discounts of

        $26,000 and $26,000 respectively | $203,000                                   |  | $195,000                                   |
|         Accounts payable                                                                                                                        | 432,000                                    |  | 496,000                                    |
|         Deferred income                                                                                                                         | 66,000                                     |  | 101,000                                    |
|         Liabilities related to discontinued  operations                                                                                         | 14,000                                     |  | 14,000                                     |
|         Other accrued liabilities                                                                                                               |    938,000                       |  |    878,000                       |
|         Total current liabilities                                                                                                               | 1,653,000                                  |  | 1,684,000                                  |
| LONG-TERM LIABILITIES:                                                                                                                                                             |                                            |  |                                            |
|         Debt, net of current portion and net of  discounts of $0 and $7,000, respectively                                                       | 1,896,000                                  |  | 2,067,000                                  |
|         Liabilities related to discontinued  operations                                                                                         | 79,000                                     |  | 82,000                                     |
|         Deferred liabilities                                                                                                                    |    640,000                       |  |    646,000                       |
|         Total long-term liabilities                                                                                                             | 2,615,000                                  |  | 2,795,000                                  |

 

* *

* *

* *

*Continued*

3

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**GOOD TIMES RESTAURANTS INC.AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)**

**(Unaudited)**
|                                                                                                                              | **December 31,** |  | **September 30,** |
|------------------------------------------------------------------------------------------------------------------------------|------------------|--|-------------------|
|                                                                                                                              | **2011**         |  | **2011**          |
| STOCKHOLDERS' EQUITY:                                                                                                        |                  |  |                   |
|     Good Times Restaurants  Inc stockholder's equity:                                                         |                  |  |                   |
|         Preferred stock,  $.01 par value;                                                 |                  |  |                   |
|             5,000,000  shares authorized, none issued and outstanding |                  |  |                   |
|             as of December  31, 2011 and September 30, 2011           | -                |  | -                 |
|                                                                                                                              |                  |  |                   |
|     Common stock, $.001 par  value; 50,000,000 shares authorized                                              |                  |  |                   |
|             2,726,214  shares issued and outstanding                  |                  |  |                   |
|         as of December 31, 2011 and September 30,  2011                                   | 8,000            |  | 8,000             |
|                                                                                                                              |                  |  |                   |
|     Capital contributed in  excess of par value                                                               | 19,992,000       |  | 19,977,000        |
|         Accumulated deficit                                                               | ( 18,047,000 )   |  | ( 17,680,000 )    |
|     Total Good Times  Restaurants Inc stockholders' equity                                                    | 1,953,000        |  | 2,305,000         |
|     Non-controlling  interest in partnerships                                                                 | 211,000          |  | 215,000           |
|               Total  stockholders' equity                   | 2,164,000        |  | 2,520,000         |
|                                                                                                                              |                  |  |                   |
|                                                                                                                              |                  |  |                   |
| TOTAL LIABILITIES AND  STOCKHOLDERS' EQUITY                                                                                  | $6,432,000       |  | $6,999,000        |

* *

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* *

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* *

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*See accompanying notes to condensed consolidatedfinancial statements*

4

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**GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**
|                                                                                                                               | **Three Months Ended**          |
|-------------------------------------------------------------------------------------------------------------------------------|---------------------------------|
|                                                                                                                               | **December 31,**                |
|                                                                                                                               | **2011**                        |  | **2010** |
| NET REVENUES:                                                                                                                 |                                 |  |  |
|         Restaurant sales,  net                                                             | $4,747,000                      |  | $4,982,000 |
|         Franchise revenues                                                                 |      99,000 |  |     103,000 |
|                 Total  revenues                    | 4,846,000                       |  | 5,085,000 |
|                                                                                                                               |                                 |  |  |
| RESTAURANT OPERATING COSTS:                                                                                                   |                                 |  |  |
|         Food and packaging  costs                                                          | 1,662,000                       |  | 1,758,000 |
|         Payroll and other  employee benefit costs                                          | 1,684,000                       |  | 1,759,000 |
|         Occupancy and other  operating costs                                               | 1,033,000                       |  | 1,083,000 |
|         Depreciation and  amortization                                                     |    208,000            |  |    204,000 |
|                 Total  restaurant operating costs  | 4,587,000                       |  | 4,804,000 |
|                                                                                                                               |                                 |  |  |
|         General and  administrative costs                                                  | 341,000                         |  | 344,000 |
|         Advertising costs                                                                  | 211,000                         |  | 217,000 |
|         Franchise costs                                                                    | 14,000                          |  | 17,000 |
|         Gain on sale of  restaurant buildings and equipment                                |   ( 15,000 )               |  |  ( 12,000 ) |
| LOSS FROM OPERATIONS                                                                                                          | ( 292,000 )                     |  | (285,000 ) |
|                                                                                                                               |                                 |  |  |
| OTHER INCOME AND  (EXPENSES):                                                                                                 |                                 |  |  |
|         Unrealized income on  interest rate swap                                           | 7,000                           |  | 13,000 |
|         Interest expense,  net                                                             | ( 54,000 )                      |  | ( 112,000 ) |
|                 Total other  income and (expenses) | ( 47,000 )                      |  |   ( 99,000 ) |
|                                                                                                                               |                                 |  |  |
| LOSS FROM CONTINUING  OPERATIONS                                                                                              |  ($339,000 )               |  | ( $384,000 ) |
|                                                                                                                               |                                 |  |  |
|         Loss from  discontinued operations                                                 | ( 11,000 )                      |  | ( 4,000 ) |
|                                                                                                                               |                                 |  |  |
| NET LOSS                                                                                                                      | ( $350,000 )                    |  | ( $388,000 ) |
|         Income attributable  to non-controlling interest                                   |     ( 17,000 )   |  | (     17,000 ) |
| NET LOSS APPLICABLE TO  COMMON SHAREHOLDERS                                                                                   | ( $367,000 )                    |  | ( $405,000 ) |
|                                                                                                                               |                                 |  |  |
| Net loss per share - basic  and diluted                                                                                       |                                 |  |  |
| Continuing operations                                                                                                         | ( $.12 )                        |  | ( $.24 ) |
| Discontinued operations                                                                                                       | ( $.00 )                        |  | ( $.00 ) |
| Net loss applicable to  common shareholders                                                                                   | ( $.13 )                        |  | ( $.25 ) |
|                                                                                                                               |                                 |  |  |
| WEIGHTED AVERAGE COMMON SHARES  USED IN PER SHARE CALCULATION:

BASIC AND DILUTED                                             | 2,726,214                       |  | 1,594,102 |

*See accompanying notes to condensed consolidatedfinancial statements*

5

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**GOOD TIMES RESTAURANTS INC.AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

** **
|                                                                                                                                                                                                           | **Three Months Ended** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------|
|                                                                                                                                                                                                           | **December 31,**       |
|                                                                                                                                                                                                           | **2011**               |   | **2010** |
| CASH FLOWS FROM OPERATING  ACTIVITIES:                                                                                                                                                                    |                        |  |  |
|         Net loss                                                                                                                                                       | ( $350,000 )           |  | ( $388,000 ) |
|         Loss from  discontinued operations                                                                                                                             |   ( 11,000 )      |  |      (4,000 ) |
|         Net loss from  continuing operations                                                                                                                           | ( 339,000 )            |  | ( 384,000 ) |
|                                                                                                                                                                                                           |                        |  |  |
| Adjustments  to reconcile net loss to net cash used in operating activities:                                                                                                                              |                        |  |  |
|             Depreciation  and amortization                                                                                                         | 208,000                |  | 204,000 |
|             Amortization of  debt issuance costs                                                                                                   | 6,000                  |  | 28,000 |
|             Stock based  compensation expense                                                                                                      | 15,000                 |  | 15,000 |
|             Unrealized gain  on interest rate swap                                                                                                 | ( 7,000 )              |  | ( 13,000 ) |
|             Recognition of  gain on sale of restaurant building                                                                                    | ( 6,000 )              |  | ( 8,000 ) |
|             Gain on  disposal of property and equipment                                                                                            | ( 9,000 )              |  | ( 4,000 ) |
|             Changes in  operating assets and liabilities:                                                                                          |                        |  |  |
|                   (Increase)  decrease in:                                                                           |                        |  |  |
|                         Receivables  and other                                         | 34,000                 |  | 64,000 |
|                         Inventories                                                    | 4,000                  |  | ( 4,000 ) |
|                         Deposits  and other                                            | 7,000                  |  | 62,000 |
|                   (Decrease)  increase in:                                                                           |                        |  |  |
|                         Accounts  payable                                              | ( 64,000 )             |  | ( 264,000 ) |
|                         Accrued  liabilities and deferred income                       |    37,000    |  |     19,000 |
|                   Net cash  used in operating activities from continuing operations                                  | (114,000 )             |  | ( 285,000 ) |
|                   Net cash  used in operating activities from discontinued operations                                | (   14,000 ) |  | (     9,000 ) |
|                             Net  cash used in operating activities | ( 128,000 )            |  | ( 294,000 ) |
|                                                                                                                                                                                                           |                        |  |  |
| CASH FLOWS FROM INVESTING  ACTIVITIES                                                                                                                                                                     |                        |  |  |
|       Proceeds from the  sale of fixed assets                                                                                                                                    | 305,000                |  | 854,000 |
|       Payments for the  purchase of property and equipment                                                                                                                       | ( 70,000 )             |  | ( 6,000 ) |
|       Loans made to  franchisees and to others                                                                                                                                   |    (6,000 )  |  |              - |
|                     Net  cash provided by investing activities                                             | 229,000                |  | 848,000 |
|                                                                                                                                                                                                           |                        |  |  |
| CASH FLOWS FROM FINANCING  ACTIVITIES:                                                                                                                                                                    |                        |  |  |
|       Proceeds from common  stock sale                                                                                                                                           | -                      |  | 1,727,000 |
|       Principal payments on  notes payable and long-term debt                                                                                                                    | ( 169,000 )            |  | ( 1,437,000 ) |
|       Distributions  paid to non-controlling interests                                                                                                                           |  ( 21,000 )       |  | ( 22,000 ) |
|                     Net  cash provided by (used in) financing activities                                   | ( 190,000 )            |  |  268,000 |
|                                                                                                                                                                                                           |                        |  |  |
| NET CHANGE IN CASH AND CASH  EQUIVALENTS                                                                                                                                                                  | ( 89,000 )             |  | 822,000 |
|                                                                                                                                                                                                           |                        |  |  |
| CASH AND CASH EQUIVALENTS,  beginning of period                                                                                                                                                           | $847,000               |  | $429,000 |
|                                                                                                                                                                                                           |                        |  |  |
| CASH AND CASH EQUIVALENTS,  end of period                                                                                                                                                                 | $758,000               |  | $1,251,000 |
|                                                                                                                                                                                                           |                        |  |  |
| SUPPLEMENTAL DISCLOSURES OF  CASH FLOW INFORMATION:                                                                                                                                                       |                        |  |  |
|       Cash paid for  interest                                                                                                                                                    | $  48,000         |  | $     86,000 |

*See accompanying notes to condensed consolidatedfinancial statements*

6

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**GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**Note 1.           Basisof Presentation**

In the opinion of management, the accompanyingunaudited condensed consolidated financial statements contain all of the normalrecurring adjustments necessary to present fairly the financial position of theCompany as of December 31, 2011 and the results of its operations and its cashflows for the three month period ended December 31, 2011. Operating results forthe three month period ended December 31, 2011 are not necessarily indicativeof the results that may be expected for the year ending September 30, 2012. Thecondensed consolidated balance sheet as of September 30, 2011 is derived fromthe audited financial statements, but does not include all disclosures requiredby generally accepted accounting principles.  As a result, these financialstatements should be read in conjunction with the Company's Form 10-K for thefiscal year ended September 30, 2011.

**Note 2.           RecentDevelopments**

** **

Wesold one company-owned restaurant in Littleton, Colorado to an unrelated thirdparty. The sale closed on December 29, 2011 with net proceeds of $308,000 whichresulted in a $9,000 gain on the sale. As described below $100,000 of theproceeds were used to prepay principal on our Wells Fargo Bank note.

Weentered into a contract for a sale leaseback transaction with an unrelatedthird party effective January 25, 2012 related to one company-owned restaurantin Firestone, Colorado, subject to certain buyer contingencies.  We also signeda letter of intent with an unrelated third party on February 1, 2012 for thesale of one company-owned restaurant, subject to certain buyer contingencies. Neithertransaction will result in significant gains or losses.

Aspreviously disclosed in the Company's current report on Form 8-K filed December9, 2011, we received notice from Wells Fargo Bank, N.A. (the "Bank") that theCompany was not in compliance with certain covenants under the Amended andRestated Credit Agreement dated December 10, 2010 (the "Credit Agreement"),including covenants requiring that the Company's tangible net worth not be lessthan $2,500,000 at any time and that the Company deliver certain landlord'sdisclaimer and consent documents to the Bank.   As previously disclosed in theCompany's current report on Form 8-K filed December 27, 2011 we entered into aFirst Amendment to the Amended Credit Agreement and Waiver of Defaults and aSecond Amended and Restated Term Note with Wells Fargo Bank (together, the"Amendments") that waived the current covenant defaults  and  modified the loancovenants and note terms.  The Amendments were conditioned upon the closing ofthe sale of the Littleton restaurant described above and provided for aprepayment of $100,000 in principal from the proceeds from the sale of theLittleton, Colorado restaurant, the release of collateral associated with thatrestaurant, the waiver of certain other collateral requirements, and a revisionto the amortization and maturity date of the remaining loan balance as ofJanuary 2, 2012 of $349,000 to December 31, 2013.  There was no change to theinterest rate of the loan.

Infiscal 2011, we sold two Company-operated restaurants and a franchisee closedone restaurant.  We continue to evaluate the near term realizable asset valueof each restaurant compared to its longer term cash flow value and we maychoose to sell, sublease or close a limited number of additional lowerperforming restaurants in fiscal 2012 as we position the company for growth innew store development and reposition our stores away from trade areas that mayhave shifted demographically or from our current concept direction.  We willrequire additional capital sources to develop additional company-ownedrestaurants. We anticipate that the sale of lower volume restaurants willimprove our operating margins as a percentage of revenue and provide cashresources for the further reduction of our long term debt and increase ourworking capital.

**Note 3.           DiscontinuedOperations**

Duringfiscal 2010 we closed two locations: one dual-branded restaurant in CommerceCity, Colorado in March 2010 and one co-developed restaurant in Denver,Colorado in June 2010. Fixed assets and associated accumulated depreciation of$406,000 related to the Commerce City location are included in the property andequipment of our condensed consolidated balance sheet. Current and long-termliabilities related to discontinued operations relate to the future estimatedlease obligations of the Commerce City location.

7

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Discontinuedoperations losses of $11,000 and $4,000 for the three month periods endedDecember 31, 2011 and December 31, 2010, respectively, are from results ofoperations and lease obligations. With respect to the Commerce City closedlocation, we have continuing aggregate lease obligations of $647,000 and wehave subleased the location for $528,000 in aggregate sublease income. We haverecorded an estimated discounted liability of $93,000 related to this location.We terminated the lease on the Denver location effective February 1, 2011 andno longer remain liable for any future lease obligations.

** **

**Note 4.           Stock-BasedCompensation**

Stock-basedcompensation is measured at the grant date, based on the calculated fair valueof the award, and is recognized as an expense over the requisite employeeservice period (generally the vesting period of the grant).

TheCompany measures the compensation cost associated with share-based payments byestimating the fair value of stock options as of the grant date using theBlack-Scholes option pricing model. The Company believes that the valuationtechnique and the approach utilized to develop the underlying assumptions areappropriate in calculating the fair values of the Company's stock options grantedduring all years presented. Estimates of fair value are not intended to predictactual future events or the value ultimately realized by the employees whoreceive equity awards.

Ournet loss for the three months ended December 31, 2011 and December 31, 2010 eachinclude $15,000 of compensation costs related to our stock-based compensationarrangements.

During the three months ended December 31, 2011, wegranted 30,000 non-statutory stock options with an exercise price of $1.31 anda per-share weighted average fair value was $1.07.

In addition to the exercise and grant date prices ofthe awards, certain weighted average assumptions that were used to estimate thefair value of stock option grants are listed in the following table:
|                          | **Non-Statutory Stock Options** |
|--------------------------|---------------------------------|
| Expected  term (years)   | **7.5**                         |
| Expected  volatility     | **95.71%**                      |
| Risk-free  interest rate | **1.47%**                       |
| Expected  dividends      | **0**                           |

We estimate expected volatility based on historicalweekly price changes of our common stock for a period equal to the currentexpected term of the options. The risk-free interest rate is based on theUnited States treasury yields in effect at the time of grant corresponding withthe expected term of the options. The expected option term is the number ofyears we estimate that options will be outstanding prior to exerciseconsidering vesting schedules and our historical exercise patterns.

A summary of stock option activity under ourshare-based compensation plan for the three months ended December 31, 2011 ispresented in the following table:
| ** **                | **Options**     | **Weighted Average Exercise Price** | **Weighted Average Remaining Contractual Life (Yrs.)** | **Aggregate Intrinsic Value** |
|---------------------------|-----------------|-------------------------------------|--------------------------------------------------------|-------------------------------|
| Outstanding-beg  of year  | 166,022         | $  6.89                        |                                                        |                               |
| Granted                   | 30,000          | $  1.31                        |                                                        |                               |
| Exercised                 | -               |                                     |                                                        |                               |
| Forfeited                 | -               |                                     |                                                        |                               |
| Expired                   | (  19,066) | $  5.25                        |                                                        |                               |
| Outstanding  Dec 31, 2011 |  176,956   | $  6.12                        | 7.1                                                    | $  0                     |
|                           |                 |                                     |                                                        |                               |
| Exercisable  Dec 31, 2011 |   114,085  | $  8.48                        | 6.1                                                    | $  0                     |

As of December 31, 2011, the total remainingunrecognized compensation cost related to unvested stock-based arrangements was$71,000 and is expected to be recognized over a period of 1.9 years.

8

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There were no stock options exercised during the threemonths ended December 31, 2011.

** **

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

** **

Comprehensive income includes net income or loss,changes in certain assets and liabilities that are reported directly in equitysuch as adjustments resulting from unrealized gains or losses onheld-to-maturity investments and certain hedging transactions. The Company'scomprehensive loss is equal to its net loss.

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 original $1,100,000term loan, the current balance of which is $349,000. The contract requiresmonthly settlements of the difference between the amounts to be received andpaid under the agreement, the amount of which is recognized in current earningsas interest expense. In addition we have recognized an unrealized gain of $7,000for the three months ended December 31, 2011 in the accompanying CondensedConsolidated Statement of Operations to adjust the liability related to theinterest rate swap to fair market value.

**Note 6.           Contingent Liabilities and Liquidity**

Weremain contingently liable on various 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.

InDecember 2011 the Company amended its note payable to Wells Fargo Bank. At thetime the Company was not in compliance with certain loan covenants. Under termsof the amended note agreement, the Company is required to have tangible networth of not less than $2.5 million as of December 31, 2012, which is greaterthan the Company's current tangible net worth.  In addition, for the quarterended June 30, 2012, the Company is required to have an EBITDA coverage ratioof .3 to 1 (and increasing thereafter). The Company is also required to repaythis note to the extent any new equity is sold in the Company. While noassurances can be given that the Company will be able to achieve thesecovenants, the Company believes that through additional financing, improvedEBITDA performance and other alternatives the Company is currently pursuing, itwill be able to remain in compliance with the amended covenants. If not, and ifthe bank elected to accelerate the note, it could adversely impact futureoperations.  However, the Company has paid down the outstanding balance on thisloan as of January 3, 2012 to $349,000, of which $182,000 is recorded as acurrent liability.  In addition, the Company is under contract for a saleleaseback transaction and a signed letter of intent for the sale of onecompany-owned restaurant (subject to certain buyer contingencies) whichtogether will pay off the PFGI II loan of $1,640,000 in full and addapproximately $400,000 of additional working capital to the Company's balancesheet if such transactions are closed as contemplated.

**Note 7.           Related Party Transactions**

In fiscal 2009 the Company entered into a loanagreement with Golden Bridge, LLC ("Golden Bridge"), pursuant to which GoldenBridge made a loan of $185,000 to the Company.  Eric Reinhard, Ron Goodson,David Grissen, Richard Stark, and Alan Teran, who were all members of theCompany's Board of Directors and stockholders of the Company, are the solemembers of Golden Bridge. The Company's and GTDT's obtaining of the Loan fromGolden Bridge and related transactions were duly approved in advance by the Company'sBoard of Directors by the affirmative vote of members thereof who did not havean interest in the transaction.  The Loan was paid in full in December 2010following the closing of the SII Investment Transaction.  Amounts due torelated parties that are included in notes payable are $0 at December 31, 2011 andSeptember 30, 2011.

** **

**Note8.           Assets Held for Sale**

Asof September 30, 2011 we reclassified a Firestone, Colorado property as heldand used which resulted in a $92,000 depreciation expense charge to accuratelyreflect the net book value of the restaurant at September 30, 2011.

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**Note 9.           Impairmentof Long-Lived Assets**

Wereview our long-lived assets for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. Recoverability of assets to be held and used is measured by acomparison of the capitalized costs of the assets to the future undiscountednet cash flows expected to be generated by the assets. The expected cash flowsare based on recent historical cash flows at the restaurant level (the lowestlevel that cash flows can be determined).

Ananalysis was performed on a restaurant by restaurant basis at December 31,2011. Assumptions used in preparing expected cash flows were as follows:
| ♦ | Sales  projections are as follows: Fiscal 2012 sales are projected to increase 3% to  5% with respect to fiscal 2011, for fiscal years 2013 to 2024 we have used  annual increases of 2% to 3%. We believe the 2% to 3% increase in the years  beyond 2012 is a reasonable expectation of growth and that it would be  unreasonable to expect no growth in our sales. These increases include menu  price increases in addition to any real growth. Historically our weighted menu  prices have increased 1.5% to 6%. |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ♦ | Our  variable and semi-variable restaurant operating costs are projected to  increase proportionately with the sales increases as well as increasing an  additional 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 decrease approximately 1% as a  percentage of sales in relation to our fiscal 2011 food and packaging costs  as a result of menu price increases and other menu initiatives.                                                                                                                                                                                                                                                                                               |
| ♦ | Salvage  value has been estimated on a restaurant by restaurant basis considering each  restaurant's particular equipment package and building size.                                                                                                                                                                                                                                                                                                                                                                  |

Giventhe results of our impairment analysis at December 31, 2011 there are norestaurants which are impaired as their projected undiscounted cash flows showrecoverability of their asset values.

Ourimpairment analysis included a sensitivity analysis with regard to the cashflow projections that determine the recoverability of each restaurant's assets.The results indicate that even with a 15% decline in our projected cash flowswe would still not have any potential impairment issues.  However if we electto sublease, close or otherwise exit a restaurant location impairment could berequired. We have experienced higher than normal food and packaging costs as apercentage of restaurant sales in recent years and we do not believe thesecosts will remain at these levels in future years. However for purposes of our cashflow projections in the asset impairment analysis we have assumed our food andpackaging costs will remain at these higher levels.

Eachtime we conduct an impairment analysis in the future we will compare actualresults to our projections and assumptions, and to the extent our actualresults do not meet expectations, we will revise our assumptions and this couldresult in impairment charges being recognized.

Allof the judgments and assumptions made in preparing the cash flow projectionsare consistent with our other financial statement calculations and disclosures.The assumptions used in the cash flow projections are consistent with otherforward-looking information prepared by the company, such as those used forinternal budgets, discussions with third parties, and/or reporting tomanagement or the board of directors.

Infiscal 2010 we closed two company operated restaurants resulting in totalcharges of $396,000. Projecting the cash flows for the impairment analysisinvolves significant estimates with regard to the performance of eachrestaurant, and it is reasonably possible that the estimates of cash flows maychange in the near term resulting in the need to write down operating assets tofair value. If the assets are determined to be impaired, the amount ofimpairment recognized is the amount by which the carrying amount of the assetsexceeds their fair value. Fair value would be determined using forecasted cashflows discounted using an estimated average cost of capital and the impairmentcharge would be recognized in income from operations.

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**Note10.         Fair Value Measurements**

Fairvalue is defined as the price that would be received to sell an asset or paidto transfer a liability in an orderly transaction between market participantsat the measurement date. Valuation techniques used to measure fair value mustmaximize the use of observable inputs and minimize the use of unobservableinputs.

The Company categorizes its assets and liabilitiesrecorded at fair value based upon the following fair value hierarchyestablished by the Financial Accounting Standards Board: 
| Level  1: | Quoted market prices in active markets for identical  assets and liabilities.                                                                                                                                                                                                                                  |
|-----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Level  2: | Observable inputs other than defined in Level 1,  such as quoted prices for similar assets or liabilities; quoted prices in  markets that are not active; or other inputs that are observable or can be  corroborated by observable market data for substantially the full term of the  assets or liabilities. |
| Level  3: | Unobservable inputs that are not corroborated by  observable market data.                                                                                                                                                                                                                                      |

The following table summarizes financial assets andliabilities that are measured at fair value on a recurring basis as of December31, 2011:

Level2:

InterestRate Swap liability:
| Balance at September 30,  2011 | $57,000       |
|--------------------------------|---------------|
| Balance at December 31,  2011  | $50,000       |
| Net change                     | $  7,000 |

Theunrealized gains for the three month periods ending December 31, 2011 andDecember 31, 2010 of $7,000 and $13,000, respectively, are reported in theCondensed Consolidated Statement of Operations. There were no transfers in orout of Level 3 for the three month period ending December 31, 2011.

**Note11.         Income Taxes**

We account for income taxes using the liability method,whereby deferred tax asset and liability account balances are determined basedon differences between the financial reporting and tax bases of assets andliabilities and are measured using the enacted tax rates and laws that will be ineffect when the differences are expected to reverse. The Company provides avaluation allowance, if necessary, to reduce deferred tax assets to theirestimated realizable value. The deferred tax assets are reviewed periodicallyfor recoverability, and valuation allowances are adjusted as necessary.

TheCompany is subject to taxation in various jurisdictions. The Company continuesto remain subject to examination by U.S. federal authorities for the years 2008through 2011. The Company believes that its income tax filing positions anddeductions will be sustained on audit and does not anticipate any adjustmentsthat will result in a material adverse effect on the Company's financialcondition, results of operations, or cash flows. Therefore, no reserves foruncertain income tax positions have been recorded. The Company's practice is torecognize interest and/or penalties related to income tax matters in income taxexpense. No accrual for interest and penalties was considered necessary as of December 31,2011.

**Note 12.         Non-controllingInterests**

Non-controllinginterests, previously called minority interests, are presented as a separateitem in the equity section of the consolidated balance sheet. The amount ofconsolidated net income or loss attributable to non-controlling interests ispresented on the face of the consolidated income statement. Changes in aparent's ownership interest in a subsidiary that do not result indeconsolidation are equity transactions, deconsolidation of a subsidiaryrequires gain or loss recognition in net income based on the fair value on thedeconsolidation date.

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**Note 13.         SubsequentEvents**

Weentered into a contract for a sale leaseback transaction with an unrelatedthird party effective January 25, 2012 related to one company-owned restaurantin Firestone, Colorado, subject to certain buyer contingencies.  We also signeda letter of intent with an unrelated third party on February 1, 2012 for the saleof one company-owned restaurant, subject to certain buyer contingencies. Neithertransaction will result in significant gains or losses.

**Note 14.         RecentAccounting Pronouncements**

Thereare no current pronouncements that affect the Company.

**Note15.         Stock Transactions**

None.

**ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**General**

This Form 10-Q contains or incorporates by referenceforward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933, as amended and the disclosure of risk factors in the Company'sform 10-K for the fiscal year ended September 30, 2011.  Also, documentssubsequently filed by us with the SEC and incorporated herein by reference maycontain forward-looking statements.  We caution investors that anyforward-looking statements made by us are not guarantees of future performanceand actual results could differ materially from those in the forward-lookingstatements as a result of various factors, including but not limited to thefollowing:
| (I)  | We compete with numerous well established  competitors who have substantially greater financial resources and longer  operating histories than we do.  Competitors have increasingly offered  selected food items and combination meals, including hamburgers, at  discounted prices, and continued discounting by competitors may adversely  affect revenues and profitability of Company restaurants. |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |                                                                                                                                                                                                                                                                                                                                                                                                              |
| (II) | We may be negatively impacted if we  experience consistent same store sales declines.  Same store sales  comparisons will be dependent, among other things, on the success of our  advertising and promotion of new and existing menu items.  No assurances can  be given that such advertising and promotions will in fact be successful.                                                         |

We may also be negatively impacted by other factorscommon to the restaurant industry such as: changes in consumer tastes away fromred meat and fried foods; increases in the cost of food, paper, labor, healthcare, workers' compensation or energy; inadequate number of hourly paidemployees; and/or decreases in the availability of affordable capitalresources.  We caution the reader that such risk factors are not exhaustive,particularly with respect to future filings.

*Restaurant Locations*

We currently operate or franchise a total of forty-threeGood Times restaurants, of which forty are in Colorado, with thirty eight inthe Denver greater metropolitan area, one in Colorado Springs and one inSilverthorne. Six of these restaurants are "dual brand", operated pursuant to aDual Brand Test Agreement with Taco John's International, of which there is onein North Dakota, two in Wyoming, and three in Colorado.
|                                         | **Total** | **Denver, CO Greater Metro** | **Colorado Other** | **Wyoming** | **North Dakota** |
|-----------------------------------------|-----------|------------------------------|--------------------|-------------|------------------|
| Good Times co-owned &  co-developed | 23        | 22                           | 1                  |             |                  |
| Good Times franchised                   | 14        | 13                           | 1                  |             |                  |
| Dual brand co-owned                     | 1         | 1                            |                    |             |                  |
| Dual brand franchised                   | 5         | 2                            |                    | 2           | 1                |
| **Total**                               | **43**    | **38**                       | **2**              | **2**       | **1**            |

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|                                 | **As of December 31,** |
|---------------------------------|------------------------|
|                                 | **2011**               | **2010** |
| Company-owned  restaurants      | 17                     | 20 |
| Co-developed  restaurants       | 7                      | 7 |
| Franchise  operated restaurants | 19                     | 21 |
| **Total restaurants**           | **43**                 | **48** |

*Fiscal2011:* In December 2010 a franchiseeoperating a Good Times restaurant in Grand Junction, Colorado terminated theirfranchise agreement and closed the restaurant. In September 2011 the companyterminated a franchise agreement with a franchisee operating a Good Timesrestaurant in Longmont, Colorado. In February 2011 we sold one dual brandedcompany-owned restaurant in Colorado Springs, Colorado, and in May 2011 we soldone company-owned Good Times restaurant in Colorado Springs, Colorado.

*Fiscal2012:* In December 2011 a franchisee'sfranchise agreement expired for a restaurant operating in Boise, Idaho and thefranchisee closed the restaurant. Also in December 2011 we sold onecompany-owned restaurant in Littleton, Colorado. We anticipate that franchiseesmay close up to two low volume franchised restaurants in fiscal 2012 and we mayclose one or two lower volume company operated restaurants, which would resultin improved overall operating margins and more efficient allocation of overheadresources.

The following presents certain historical financialinformation of our operations.  This financial information includes results forthe three month period ending December 31, 2011 and results for the three monthperiod ending December 31, 2010.

**Results of Operations**

*Net Revenues*

Net revenues for the three months ended December 31,2011 decreased $239,000 (4.7%) to $4,846,000 from $5,085,000 for the threemonths ended December 31, 2010.  Same store restaurant sales increased $140,000(3.4%) during the three months ended December 31, 2011 for the restaurants thatwere open for the full three month periods ending December 31, 2011 and December31, 2010. Restaurants are included in same store sales after they have beenopen a full fifteen months and only Good Times restaurants are included withdual branded restaurants excluded. Restaurant sales decreased $342,000 due to twocompany-owned stores sold in fiscal 2011 and one company-owned store sold inDecember, 2011. Restaurant sales decreased $8,000 due to one company-owned dualbranded restaurants not included in same store sales. Restaurant sales alsodecreased $25,000 due to one non-traditional company-owned restaurant notincluded in same store sales.

The positive same store sales results for the first fiscalquarter of 2012 reflect the continuation of the positive momentum we have experiencedbeginning in the last fiscal quarter of 2010 and continuing through all offiscal 2011.

Our outlook for fiscal 2012 is optimistic based on thelast seventeen months' of positive sales trends, however our sales trends areinfluenced by many factors and the macroeconomic environment remainschallenging for smaller restaurant chains.  Our average transaction increasedin fiscal 2011 compared to fiscal 2010 and we are continuing to manage ourmarketing communications to balance growth in customer traffic and theiraverage expenditure.

Franchise revenues for the three months ended December31, 2011 decreased $4,000 to $99,000 from $103,000 for the three months ended December31, 2010 due to a decrease in franchise fees and royalties. Same store GoodTimes franchise restaurant sales increased 2.2% during the three months endedDecember 31, 2011 for the franchise restaurants that were open for the fullperiods ending December 31, 2011 and December 31, 2010. Dual branded franchiserestaurant sales remained constant during the three months ended December 31,2011, compared to the same prior year period. In September 2011 the companyterminated a franchise agreement with a franchisee operating a Good Timesrestaurant in Longmont, Colorado.

*Restaurant Operating Costs*

Restaurant operating costs as a percent of restaurantsales were 96.6% during the three months ended December 31, 2011 compared to 96.4%in the same prior year period.

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The changes in restaurant-level costs are explained asfollows:
|                                                                | Three months ended December  31, 2011 |
|----------------------------------------------------------------|---------------------------------------|
| Restaurant-level costs for  the period ended December 31, 2010 | 96.4%                                 |
| Decrease in food and  packaging costs                          | (.3%)                                 |
| Increase in payroll and other  employee benefit costs          | .2%                                   |
| Change in occupancy and  other operating costs                 | -                                     |
| Increase in depreciation  and amortization                     | .3%                                   |
| Restaurant-level costs for  the period ended December 31, 2011 | 96.6%                                 |

*Food and Packaging Costs*

Forthe three months ended December 31, 2011 our food and paper costs decreased $96,000to $1,662,000 (35.0% of restaurant sales) from $1,758,000 (35.3% of restaurantsales) compared to the same prior year period. The $96,000 decrease is due tolower sales compared to the same prior year period.

Infiscal 2011 our weighted food and packaging costs increased approximately 5%and we implemented a total of 4.7% in menu price increases during the sameperiod. We anticipate continued cost pressure on several core commodities,including beef, bacon and dairy for the balance of fiscal 2012. However, weanticipate our food and packaging costs as a percentage of sales will decreasein fiscal 2012 from a combination of price increases, product sales mix changesand recipe modifications.

*Payroll and OtherEmployee Benefit Costs*

For the three months ended December 31, 2011 ourpayroll and other employee benefit costs decreased $75,000 to $1,684,000 (35.5%of restaurant sales) from $1,759,000 (35.3% of restaurant sales) compared tothe same prior year period. Payroll and other employee benefits decreased $113,000in the three months ending December 31, 2011 due to the sale of twocompany-owned restaurants in February and May of 2011. The $113,000 decreasewas offset by a $38,000 increase in payroll and employee benefit costs in theremaining restaurants due to increased sales compared to the same prior yearperiod.

*Occupancy and OtherOperating Costs*

For the three months ended December 31, 2011 ouroccupancy and other operating costs decreased $50,000 to $1,033,000 (21.8% ofrestaurant sales) from $1,083,000 (21.7% of restaurant sales) compared to thesame prior year period.

We experienced a $96,000 decrease in occupancy andother operating costs compared to the same prior year period due to the sale oftwo company-owned restaurants in February and May of 2011. The $96,000 decreasewas offset by increases in rent, property taxes, repairs and maintenance andbank supplies and fees in the remaining restaurants, compared to the same prioryear period.

*Depreciation and Amortization*

For the three months ended December 31, 2011, ourdepreciation and amortization increased $4,000 to $208,000 (4.4% of restaurantsales) from $204,000 (4.1% of restaurant sales) compared to the same prior yearperiod.

The increase in depreciation and amortization for thethree month period ended December 31, 2011 is due primarily to an increase relatedto the restaurant reclassified from held for sale to held and used, offset by adecrease of $18,000 due to the sale of two company-owned restaurants in fiscal 2011.

*General and Administrative Costs*

For the three months ended December 31, 2011, general andadministrative costs decreased $3,000 to $341,000 (7.0% of total revenues) from$344,000 (6.8% of total revenues) for the same prior year period.

*AdvertisingCosts*

For the three months ended December 31, 2011advertising costs decreased $6,000 to $211,000 (4.4% of restaurant sales) from$217,000 (4.3% of restaurant sales) for the same prior year period. Thedecrease is due to lower total restaurant sales in the current period comparedto the same prior year period from the closure of restaurants.

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Contributions are made to the advertising materialsfund and regional advertising cooperative based on a percentage of sales andthe percentage contribution for fiscal 2011 remained the same as the prior yearperiod.

*Franchise Costs*

For the three months ended December 31, 2011,franchise costs decreased $3,000 to $14,000 (.3% of total revenues) from $17,000(.3% of total revenues) for the same prior year period.

*Gain on Sale of Assets*

For the three months ended December 31, 2011, our gainon the sale of assets increased $3,000 to $15,000 from $12,000 for the sameprior year period. The current three month period ending December 31, 2011includes a gain of $9,000 related to the sale of one company-owned restaurantin December 2011. 

*Loss from Operations*

We had a loss from operations of $292,000 in the threemonths ended December 31, 2011 compared to a loss from operations of $285,000for the same prior year period.

The increase in loss from operations for the three monthperiod is due primarily to the decrease in net revenues offset by other mattersdiscussed in the "Restaurant Operating Costs", "General andAdministrative Costs", "Franchise Costs" and "Loss on Sales of Assets"sections of Item 2 above.

*Loss from Continuing Operations*

The net loss from continuing operations was $339,000for the three months ended December 31, 2011 compared to a net loss fromcontinuing operations of $384,000 for the same prior year period. The changefrom the three month period ended December 31, 2011 to December 31, 2010 wasattributable to the increase in loss from operations for the three months endedDecember 31, 2011, offset by a decrease in net interest expense of $58,000compared to the same prior year period. Net interest expense for the threemonths ended December 31, 2011 includes non-cash amortization of debt issuancecosts of $6,000 compared to $28,000 in the same prior year period. A decreasein our long term notes payable accounts for the remaining $36,000 decrease innet interest expense, compared to the same prior year period.

*Income (loss) from Discontinued Operations*

The loss from discontinued operations was $11,000 forthe three months ended December 31, 2011 compared to $4,000 for the prior yearthree month period ended December 31, 2010.

**Liquidity and Capital Resources**

*Cash and Working Capital*

Asof December 31, 2011, we had $758,000 in cash and cash equivalents on hand.  Wecurrently plan to use the cash balance and any cash generated from operationsfor our working capital needs in fiscal 2012. We believe that we will havesufficient capital to meet our working capital, long term debt obligations andrecurring capital expenditure needs in fiscal 2012.  Additionally, we may sellor sublease select underperforming company operated restaurants if we believethe realizable asset value is greater than the long term cash flow value or ifthe asset does not fit our longer term goal for distribution and location ofrestaurants.

Asof December 31, 2011, we had a working capital deficit of $601,000 due to normalrecurring accounts payable and other accrued liabilities exceeding our cash andother current assets.

Wesold one company-owned restaurant in Littleton, Colorado to an unrelated thirdparty. The sale closed on December 29, 2011 with net proceeds of $308,000 whichresulted in a $9,000 gain on the sale. As described below $100,000 of theproceeds were used to prepay principal on our Wells Fargo Bank note.

*Liquidity*

As discussed herein, in December 2011 the Companyamended its note payable to Wells Fargo Bank. At the time the Company was notin compliance with certain loan covenants. Under terms of the amended noteagreement, the Company is required to have tangible net worth of not less than $2.5million as of December 31, 2012, which is greater than the Company's current tangiblenet worth. In addition, for the quarter ended June 30, 2012, the Company

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isrequired to have an EBITDA coverage ratio of .3 to 1 (and increasingthereafter). While there is no assurance that the Company will be able toachieve these covenants, the Company believes that through additional financing, improved EBITDA performance and other alternatives the Company is currentlypursuing, it will be able to remain in compliance with the amended covenants.  Ifnot, and if the bank elected to accelerate the note, it could adversely impactfuture operations. However, the Company has paid down the outstanding balanceon this loan as of January 3, 2012 to $349,000, of which $182,000 is recordedas a current liability. In addition, the Company is under contract for a saleleaseback transaction and a signed letter of intent for the sale of onecompany-owned restaurant (subject to certain buyer contingencies) whichtogether will pay off the PFGI II loan of $1,640,000 in full and addapproximately $400,000 of additional working capital to the Company's balancesheet provided such transactions are closed as contemplated.

*Financing Activities*

WellsFargo Note Payable: In May 2007 weborrowed $1,100,000 from Wells Fargo Bank (the "Bank") under a note payablewith an eight year term with a floating interest rate at .50% below prime.  Wesimultaneously entered into an interest rate swap transaction with Wells FargoBank for the full $1,100,000 with a fixed interest rate of 7.77% for the fulleight year term coinciding with the note payable.  As previously disclosed inthe Company's current report on Form 8-K filed December 17, 2010, we enteredinto a new Credit and Loan Agreement that modified the loan covenants andprovided additional collateral to Wells Fargo for the remaining loan balance of$528,552. In addition to the normal recurring principal payments we have madeprincipal payments of $90,000 from the proceeds of the sale of two company-ownedrestaurants in Colorado Springs, Colorado to further reduce the note payablethereby reducing certain collateral under the modified Credit and LoanAgreement.

OnDecember 27, 2011, Good Times Restaurants Inc. and its subsidiary Good Times DriveThru Inc. (together, the "Company") entered into a First Amendment To Amendedand Restated Credit Agreement and Waiver of Defaults and a Second Amended andRestated Term Note in the principal amount of $470,874 (together the Amendments")with the Bank. The Amendments were conditional upon the closing of the sale ofthe Littleton restaurant described under Recent Events and provide for areduction in the principal amount of the loan by an additional $100,000 fromthe proceeds of that sale, the release of collateral associated with thatrestaurant and a modification to the repayment terms and maturity date of theloan to December 31, 2013.  The Amendments waived the current covenant defaultsasserted by the Bank and modify certain financial covenants in the CreditAgreement requiring the Company to have a Net Worth not less than $2,500,000 asof December 31, 2012 and thereafter and an EBITDA Coverage Ratio not less than(i) 0.30 to 1.00 as of the end of the third quarter ending June 30, 2012, (ii)0.70 to 1.00 as of the end of the fiscal year ending September 30, 2012, and(iii) .90 to 1.00 as of the end of each fiscal quarter thereafter, determinedon a rolling 4-quarter basis.  The Company is required to prepay the Term Loanup to the full outstanding principal balance of the note (in addition to anyand all other obligations due to Bank including the Interest Rate Swap) uponthe sale of any stock or other equity interest in the Company. There was notany change to the interest rate or fees payable to the Bank under the Amendmentand the re-amortized loan balance was $349,000 as of January 2, 2012. Repaymentof the loan is secured by equipment in various restaurants owned by theCompany.

PFGIII LLC Promissory Note: In July 2008,we entered 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 maturityto July 10, 2010. Effective January 2, 2010, the Company entered into anagreement to amend its loan with PFGI II LLC.  The maturity date was extendedto December 31, 2012, the interest rate was increased to 8.65% and monthlypayments of principal and interest are payable beginning January 31, 2010,based upon a 25 year amortization prior to maturity. In connection with the agreement,the Company issued a three-year warrant dated January 2, 2010 to PFGI II, LLCwhich provides that PFGI II, LLC may at any time from January 2, 2010 untilDecember 31, 2012 purchase up to 37,537 shares of the Company's common stock atan exercise price of $3.33 per share. The number of shares purchasable uponexercise of the warrant and the exercise price are subject to customaryanti-dilution adjustments upon the occurrence of any stock dividends, stocksplits, reverse stock splits, recapitalizations, reclassifications, stockcombinations or similar events. The fair value of the warrant issued to PFGIII, LLC was determined to be $79,000 with the following assumptions; 1) riskfree interest rate of 1.7%, 2) an expected life of 3 years, and 3) an expecteddividend yield of zero. The fair value of $79,000 was charged to the notediscount and credited to Additional Paid in Capital. The note discount is beingamortized over the term of thirty six months and charged to interest expense.

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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 a first deed of trust on one real property funded by the lineof credit. On December 5, 2010 the company sold a parcel of land in Aurora,Colorado and used approximately $812,000 of the net proceeds to reduce the loanbalance. The total outstanding balance on the promissory note was $1,640,000 atDecember 31, 2011.  Of the $1,640,000 outstanding balance, $1,595,000 isrelated to the construction of one company-owned restaurant in Firestone,Colorado that opened in October 2008.

GoldenBridge Loan Agreement: On April 20,2009 as reported on Form 8-K, the Company entered into a loan agreement withGolden Bridge, LLC ("Golden Bridge"), pursuant to which Golden Bridge made aloan of $185,000 (the "Golden Bridge Loan") to GTDT to be used for restaurantmarketing and other working capital costs.  Eric Reinhard, Ron Goodson, DavidGrissen, Richard Stark, and Alan Teran, who were all members of the Company'sBoard of Directors at the time of the transaction and stockholders of theCompany, are the sole members of Golden Bridge.  The loan was repaid in full onDecember 13, 2010 from the proceeds of the SII Investment Transaction (see "SIIInvestment Transaction" below).

Inconnection with the Golden Bridge Loan, the Company issued a three-year warrantdated April 20, 2009 to Golden Bridge which provides that Golden Bridge may atany time from April 20, 2009 until April 20, 2012 purchase up to 30,833 sharesof the Company's common stock at an exercise price of $3.45 per share.  Thenumber of shares purchasable upon exercise of the warrant and the exerciseprice are subject to customary anti-dilution adjustments upon the occurrence ofany stock dividends, stock splits, reverse stock splits, recapitalizations,reclassifications, stock combinations or similar events. The fair value of thewarrant issued to Golden Bridge was determined to be $42,000. The note discountwas amortized over fourteen months and charged to interest expense.

W. Capital and John T. MacDonald Loan Agreement: OnFebruary 1, 2010, the Company entered into a loan agreement with W Capital,Inc. ("W Capital"), John T. McDonald ("McDonald") and Golden Bridge, pursuantto which the lenders made loans totaling $200,000, with up to an additional$200,000 available through April 30, 2010, to be used for restaurant marketingand other working capital uses of GTDT.  As set forth below, the loan agreementwas subsequently amended as of April 1, 2010 to remove Golden Bridge as alender and to replace it with additional loans from W Capital and McDonald.  OnDecember 13, 2010, the outstanding principal amount of the Bridge Loans waspaid in full from the proceeds of the SII Investment Transaction, and accruedinterest on the Bridge Loans was converted into 26,477 shares of Common Stock.

Inconnection with the Bridge Loans, the Company issued warrants dated February 1,2010 to W Capital and McDonald which provide that the lenders may at any timefrom February 1, 2010 until two years from the date of repayment or conversionof the Bridge Loans purchase up to an aggregate of 16,667 shares of theCompany's Common Stock at an exercise price of 25% less than the average priceof the Company's common stock during the 20 days prior to the exercise date,provided, however, that the exercise price shall not be below $2.25 per sharenor above $3.24 per share.  Pursuant to the terms of the loan agreement,because the Bridge Loans were not repaid prior to August 1, 2010, the Companyissued warrants to W Capital and McDonald for the purchase of 16,667 additionalshares of the Company's Common Stock upon the same terms as the initialwarrants.  The number of shares purchasable upon exercise of the warrantsissued to W Capital and McDonald and the exercise price are subject tocustomary anti-dilution adjustments upon the occurrence of any stock dividends,stock splits, reverse stock splits, recapitalizations, reclassifications, stockcombinations or similar events.  The warrants will expire on December 12, 2012.

Thefair value of the warrants issued February 1, 2010 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 was amortized over the term of seven monthsand charged to interest expense.

Theintrinsic value of the embedded beneficial conversion feature of the BridgeLoans was determined to be $161,000. The intrinsic value of $161,000 wascharged to the note discount and credited to Additional Paid in Capital. Thenote discount was amortized over the term of seven months and charged tointerest expense.

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Thefair value of the warrants issued August 1, 2010 was determined to be $36,000with the following assumptions: 1) risk free interest rate of .70%, 2) anexpected life of 2.4 years, and 3) an expected dividend yield of zero. The fairvalue of $36,000 was charged to the note discount and credited to AdditionalPaid in Capital. The note discount was amortized over the term of five monthsand charged to interest expense.

SIIInvestment Transaction: On October29, 2010, the Company and SII entered into the Purchase Agreement, pursuant towhich the Company agreed to sell, and SII agreed to purchase, 1,400,000 Sharesof Common Stock at a purchase price of $1.50 per share, or an aggregatepurchase price of $2,100,000.  The Purchase Agreement was amended on December13, 2010.  On December 13, 2010, the Company and SII completed the SIIInvestment Transaction through the issuance and sale of the Shares to SII.  OnDecember 13, 2010, the Company and SII also entered into a Registration RightsAgreement, pursuant to which the Company granted SII certain registrationrights with respect to resale of the Shares.  As a result of the completion ofthe SII Investment Transaction, SII became the beneficial owner ofapproximately 51.4 percent of the Company's outstanding Common Stock.

ThePurchase Agreement provides that for so long as SII holds more than 50 percentof our outstanding common stock, (i) our Board of Directors shall consist ofseven members, and (ii) SII will have the right to designate four members ofour Board.  During fiscal 2011 SII agreed to a Board of Directors consisting ofsix members, retaining the right to designate a seventh member. In addition,the Purchase Agreement provides that for a period of three years following theClosing, as long as SII continues to own at least 80 percent of its CommonStock acquired, SII will have a right of first refusal to purchase additionalsecurities which are offered and sold by the Company for the purpose ofmaintaining its percentage interest in the Company.

Theproceeds from the SII Investment Transaction were used to pay approximately$288,000 of expenses related to the transaction, repay $585,000 in short termloans, reduce accrued liabilities by $200,000, reduce accounts payable byapproximately $150,000 and the balance going to increase the Company's workingcapital.

*Capital Expenditures*

Wedo not have any plans for any significant capital expenditures for the balanceof fiscal 2012, other than normal recurring capital expenditures for existingrestaurants and the possible exterior re-imaging of several company-ownedrestaurants. Additional commitments for the development of new restaurants infiscal 2012 and beyond will depend on the Company's sales trends, cashgenerated from operations and our access to additional capital.

*CashFlows*

Net cash used in operating activities was $128,000 forthe three months ended December 31, 2011. The net cash used in operatingactivities for the three months ended December 31, 2011 was the result of a netloss of ($350,000) as well as cash and non-cash reconciling items totaling $222,000(comprised of depreciation and amortization of $208,000, stock-basedcompensation expense of $15,000, a deferred gain of $6,000, an accounts payabledecrease of $64,000 and a net increase in other operating assets andliabilities of $69,000).

Net cash used in operating activities was $294,000 forthe three months ended December 31, 2010. The net cash used in operatingactivities for the three months ended December 31, 2010 was the result of a netloss of ($388,000) as well as cash and non-cash reconciling items totaling $94,000(comprised of depreciation and amortization of $232,000, stock basedcompensation expense of $15,000, discontinued operations costs of $5,000 anaccounts payable decrease of $264,000 and a net decrease in other operatingassets and liabilities of $72,000).

Net cash provided by investing activities for the threemonths ended December 31, 2011 was $229,000 which reflects proceeds from thesale of property of $305,000, payments of $17,000 for miscellaneous restaurantrelated capital expenditures, payments of $53,000 for the completion of the installationof new menu boards and a $6,000 loan to a franchisee.

Net cash provided by investing activities for the threemonths ended December 31, 2010 was $848,000 which reflects proceeds from thesale of property of $854,000 and payments of $6,000 for miscellaneousrestaurant related capital expenditures.

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Net cash used in financing activities for the threemonths ended December 31, 2011 was $190,000, which includes principal paymentson notes payable and long term debt of $169,000 and distributions tonon-controlling interests of $21,000.

Net cash provided by financing activities for the threemonths ended December 31, 2010 was $268,000, which includes net proceeds of$1,727,000 from the sale of common stock, principal payments on notes payableand long term debt of $1,437,000 and distributions to non-controlling interestsof $22,000.

*Contingencies*

Weremain contingently liable on various 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.

*SubsequentEvents*

Weentered into a contract for a sale leaseback transaction with an unrelatedthird party effective January 25, 2012 related to one company-owned restaurantin Firestone, Colorado, subject to certain buyer contingencies.  We also signeda letter of intent with an unrelated third party on February 1, 2012 for thesale of one company-owned restaurant, subject to certain buyer contingencies. Neithertransaction will result in significant gains or losses.

**Impact of Inflation**

Infiscal 2011 our weighted food and packaging costs increased approximately 5%.We implemented a 1.2% menu price increase in February 2011, a 1.1% menu priceincrease in late May 2011 and a 2.4% menu price increase in September 2011. Weanticipate continued cost pressure on several core commodities, including beef,bacon and dairy for fiscal 2012. However, we anticipate our food and packagingcosts as a percentage of sales will decrease in fiscal 2012 from a combinationof price increases, product sales mix changes and recipe modifications. We areplanning moderate price increases in fiscal 2012, which may or may not besufficient to recover increased commodity costs or increases in other operatingexpenses.

**Seasonality**

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

**ITEM 3.                QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

Not required.

**ITEM 4T.             CONTROLSAND PROCEDURES**

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

Basedon an evaluation of the Company's disclosure controls and procedures (asdefined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of1934, as amended), as of the end of the period covered by this report on form10Q, the Company's Chief Executive Officer and Controller (its principalexecutive officer and principal financial officer, respectively) have concludedthat the Company's disclosure controls and procedures were effective.

**Changesin Internal Control over Financial Reporting**

Therehave been no significant changes in the Company's internal control overfinancial reporting that occurred during the Company's fiscal quarter ended December31, 2011 that have materially affected, or are reasonably likely to materiallyaffect, the Company's internal control over financial reporting.

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**PART II - OTHER INFORMATION**

**ITEM1.                LEGAL PROCEEDINGS**

The Company is periodicallysubject to legal proceedings which are incidental to its business.  These legalproceedings are not expected to have a material impact on the Company.

**ITEM 1A.             RISKFACTORS**

                                Notrequired.

**ITEM2.                UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

                                None.

**ITEM 3.                DEFAULTSUPON SENIOR SECURITIES**

                                None.

**ITEM 4.                (REMOVED AND RESERVED)**

**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  Executive Officer pursuant to 18 U.S.C. Section 1350     |
| *31.2       | Certification of Controller  pursuant to 18 U.S.C. Section 1350                  |
| *32.1       | Certification of Chief  Executive Officer and Controller pursuant to Section 906 |

*filed herewith

**SIGNATURES**

In accordance with therequirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.
|                    | **GOOD  TIMES RESTAURANTS INC.**                        |
|-------------------------|---------------------------------------------------------|
| DATE: February 14, 2012 |                                                         |
|                         | /s/ Boyd E. Hoback                                      |
|                         | Boyd  E. Hoback

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

Controller                           |

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