UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

_x_QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the quarterly period ended June 30, 2010

OR

___TRANSITION REPORTPURSUANT 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 ItsCharter)

|  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, IncludingArea Code)

Indicate bycheck mark whether the registrant: (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

Yes      x No     _

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Indicate bycheck mark whether the registrant is a large accelerated filer, an acceleratedfiler, a non-accelerated filer or a smaller reporting company, as defined inRule 12b-2 of the Exchange Act .
| Large accelerated filer __ |  | Accelerated  filer            __ |
|----------------------------|--|-----------------------------------------------------------------------------------------|
| Non-accelerated filer __   |  | Smaller  reporting company        x                  |

Indicate bycheck mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).

Yes      __ No  x

As of August16, 2010, there were 3,898,559 shares of the Registrant's common stock, parvalue $0.001 per share, issued and outstanding.

**Form 10-Q**

**Quarter Ended June 30,2010**

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** **

|          | **INDEX**                                                                              | **PAGE**      |
|----------|----------------------------------------------------------------------------------------|---------------|
|          |                                                                                        |               |
|          | **PART I - FINANCIAL  INFORMATION**                                                    |               |
|          |                                                                                        |               |
| Item 1.  | Financial Statements                                                                   |               |
|          |                                                                                        |               |
|          | Condensed Consolidated  Balance Sheets -                                               |               |
|          | June 30, 2010 (unaudited)  and September 30, 2009 (unaudited)                          | 3  - 4        |
|          |                                                                                        |               |
|          | Condensed Consolidated  Statements of Operations (unaudited)                           |               |
|          | For the three and nine  months ended June 30, 2010 and 2009                            | 5             |
|          |                                                                                        |               |
|          | Condensed Consolidated  Statements of Cash Flow (unaudited)                            |               |
|          | For the three and nine  months ended June 30, 2010 and 2009                            | 6             |
|          |                                                                                        |               |
|          | Notes to Condensed  Consolidated Financial Statements                                  | 7  - 14       |
|          |                                                                                        |               |
| Item 2.  | Management's Discussion and  Analysis of Financial Condition and Results of Operations | 14  - 23      |
|          |                                                                                        |               |
| Item 3.  | Quantitative and  Qualitative Disclosures About Market Risk                            | 23            |
|          |                                                                                        |               |
| Item 4T. | Controls and Procedures                                                                | 23            |
|          |                                                                                        |               |
|          | **PART II - OTHER  INFORMATION**                                                       |               |
|          |                                                                                        |               |
| Item 1.  | Legal Proceedings                                                                      | 23            |
|          |                                                                                        |               |
| Item 1A. | Risk Factors                                                                           | 23            |
|          |                                                                                        |               |
| Item 2.  | Unregistered Sales of  Equity Securities and Use of Proceeds                           | 23            |
|          |                                                                                        |               |
| Item 3.  | Defaults Upon Senior  Securities                                                       | 23            |
|          |                                                                                        |               |
| Item 4.  | Submission of Matters to a  Vote of Security Holders                                   | 24            |
|          |                                                                                        |               |
| Item 5.  | Other Information.                                                                     | 24            |
|          |                                                                                        |               |
| Item 6.  | Exhibits                                                                               | 24            |
|          |                                                                                        |               |
|          | **SIGNATURES**                                                                         | 24            |
|          |                                                                                        |               |
|          | **CERTIFICATIONS**                                                                     | Exhibit  31.1 |
|          |                                                                                        | Exhibit  31.2 |
|          |                                                                                        | Exhibit  32.1 |

**PARTI - FINANCIAL INFORMATION**

**ITEM 1.          FINANCIALSTATEMENTS**

**GOODTIMES RESTAURANTS INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

**ASSETS**

----

** **

|                                                                                                                                 | June 30,     | September  30, |
|---------------------------------------------------------------------------------------------------------------------------------|--------------|----------------|
|                                                                                                                                 | 2010         | 2009           |
| CURRENT ASSETS:                                                                                                                 |              |                |
|             Cash and cash  equivalents                                   | $522,000     | $815,000       |
|             Receivables,  net of allowance for doubtful

accounts  of $0 | 191,000      | 122,000        |
|             Prepaid  expenses and other                                  | 66,000       | 32,000         |
|             Inventories                                                  | 211,000      | 220,000        |
|             Notes  receivable                                            | 3,000        | 36,000         |
|             Total current  assets                                        | 993,000      | 1,225,000      |
|                                                                                                                                 |              |                |
| PROPERTY AND EQUIPMENT, at  cost:                                                                                               |              |                |
|             Land and  building                                           | 6,607,000    | 6,596,000      |
|             Leasehold  improvements                                      | 3,891,000    | 4,107,000      |
|             Fixtures and  equipment                                      | 8,265,000    | 8,438,000      |
|                                                                                                                                 | 18,763,000   | 19,141,000     |
|                                                                                                                                 |              |                |
|             Less  accumulated depreciation and amortization              | (12,637,000) | (11,853,000)   |
|                                                                                                                                 | 6,126,000    | 7,288,000      |
|                                                                                                                                 |              |                |
|             Assets held for  sale                                        | 1,595,000    | 1,595,000      |
| OTHER ASSETS:                                                                                                                   |              |                |
|             Notes  receivable, net of current portion                    | 100,000      | 82,000         |
|             Deposits and  other assets                                   | 114,000      | 64,000         |
|                                                                                                                                 | 214,000      | 146,000        |
|                                                                                                                                 |              |                |
| TOTAL ASSETS                                                                                                                    | $8,928,000   | $10,254,000    |

**LIABILITIESAND STOCKHOLDERS' EQUITY**

----

** **

| CURRENT LIABILITIES:                                                                                                                                            |            |            |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
|             Current  maturities of long-term debt, net of discounts of $61,000 and $35,000  respectively | $1,310,000 | $1,027,000 |
|             Accounts  payable                                                                            | 701,000    | 355,000    |
|             Deferred income                                                                              | 118,000    | 113,000    |
|             Liabilities  related to discontinued operations                                              | 20,000     | -          |
|             Other accrued  liabilities                                                                   | 1,222,000  | 930,000    |
|             Total current  liabilities                                                                   | 3,371,000  | 2,425,000  |
| LONG-TERM LIABILITIES:                                                                                                                                          |            |            |
|             Debt,  net of current portion and net of discounts of $40,000 and $0, respectively           | 2,418,000  | 2,478,000  |
|             Liabilities  related to discontinued operations                                              | 128,000    | -          |
|             Deferred  liabilities                                                                        | 842,000    | 973,000    |
|             Total long-term  liabilities                                                                 | 3,388,000  | 3,451,000  |

**GOOD TIMES RESTAURANTS INC. ANDSUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS (Continued)**

**(Unaudited)**

----

|                                                                                                                                                                                                    | June 30,     | September 30, |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|---------------|
|                                                                                                                                                                                                    | 2010         | 2009          |
| STOCKHOLDERS' EQUITY:                                                                                                                                                                              |              |               |
| Non-controlling interest                                                                                                                                                                           | 278,000      | 428,000       |
| Preferred stock, $.01 par  value;                                                                                                                                                                  |              |               |
|             5,000,000  shares authorized, none issued                                                                                       |              |               |
|             and outstanding  as of September 30, 2009 and

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

            June 30, 2010     | 4,000        | 4,000         |
|                                                                                                                                                                                                    |              |               |
| Capital contributed in  excess of par value                                                                                                                                                        | 18,095,000   | 17,751,000    |
| Accumulated deficit                                                                                                                                                                                | (16,208,000) | (13,805,000)  |
|             Total  stockholders' equity                                                                                                     | 2,169,000    | 4,378,000     |
|                                                                                                                                                                                                    |              |               |
| TOTAL LIABILITIES AND  STOCKHOLDERS' EQUITY                                                                                                                                                        | $8,928,000   | $10,254,000   |

**GOODTIMES RESTAURANTS INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

----

** **
|                                                                                                    | **Three Months Ended**

**June 30,**                                      | **Nine Months Ended**

**June 30,**                     |
|----------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------|---------------------------------------------------------|
|                                                                                                    | **2010**                                                                  | **2009**                                                | **2010** |  | **2009** |
| NET  REVENUES:                                                                                     |                                                                           |                                                         |  |  |
| Restaurant  sales, net                                                                             | $5,438,000                                                                | $5,891,000                                              | $14,751,000 | $16,265,000 |
| Franchise  revenues                                                                                | 127,000                                                                   | 138,000                                                 | 351,000 | 412,000 |
| Total  revenues                                                                                    | 5,565,000                                                                 | 6,029,000                                               | 15,102,000 | 16,677,000 |
|                                                                                                    |                                                                           |                                                         |  |  |
| RESTAURANT  OPERATING COSTS:                                                                       |                                                                           |                                                         |  |  |
| Food and  packaging costs                                                                          | 1,956,000                                                                 | 2,011,000                                               | 5,139,000 | 5,477,000 |
| Payroll  and other employee benefit costs                                                          | 1,905,000                                                                 | 1,955,000                                               | 5,438,000 | 5,751,000 |
| Occupancy  and other operating costs                                                               | 1,127,000                                                                 | 1,147,000                                               | 3,389,000 | 3,365,000 |
| Accretion  of deferred rent                                                                        | (126,000)                                                                 | -                                                       | (126,000) | - |
| Opening  costs                                                                                     | -                                                                         | -                                                       | - | 15,000 |
| Depreciation  and amortization                                                                     | 245,000                                                                   | 294,000                                                 | 717,000 | 876,000 |
| Total  restaurant operating costs                                                                  | 5,107,000                                                                 | 5,407,000                                               | 14,557,000 | 15,484,000 |
| General  and administrative costs                                                                  | 361,000                                                                   | 346,000                                                 | 1,096,000 | 1,238,000 |
| Advertising  costs                                                                                 | 312,000                                                                   | 334,000                                                 | 862,000 | 934,000 |
| Franchise  costs                                                                                   | 30,000                                                                    | 35,000                                                  | 95,000 | 108,000 |
| (Gain)  loss on sale of restaurant building and equipment                                          | 55,000                                                                    | (7,000)                                                 | 40,000 | (22,000) |
| LOSS FROM  OPERATIONS                                                                              | (300,000)                                                                 | (86,000)                                                | (1,548,000) | (1,065,000) |
|                                                                                                    |                                                                           |                                                         |  |  |
| OTHER  INCOME AND (EXPENSES):                                                                      |                                                                           |                                                         |  |  |
| Unrealized  income (loss) on interest rate swap                                                    | (7,000)                                                                   | 29,000                                                  | 3,000 | (87,000) |
| Interest  income (expense), net                                                                    | (200,000)                                                                 | (78,000)                                                | (440,000) | (183,000) |
| Total  other income and (expenses)                                                                 | (207,000)                                                                 | (49,000)                                                | (437,000) | (270,000) |
|                                                                                                    |                                                                           |                                                         |  |  |
| LOSS FROM  CONTINUING OPERATIONS                                                                   | ($507,000)                                                                | ($135,000)                                              | ($1,985,000) | ($1,335,000) |
|                                                                                                    |                                                                           |                                                         |  |  |
| Loss from  discontinued operations                                                                 | (126,000)                                                                 | (42,000)                                                | (597,000) | (153,000) |
|                                                                                                    |                                                                           |                                                         |  |  |
| NET LOSS                                                                                           | ($633,000)                                                                | ($177,000)                                              | ($2,582,000) | ($1,488,000) |
| Income (expense) from  non-controlling interest                                                    | 68,000                                                                    | (3,000)                                                 | 179,000 | 61,000 |
| NET LOSS  APPLICABLE TO COMMON SHAREHOLDERS                                                        | ($565,000)                                                                | ($180,000)                                              | ($2,403,000) | ($1,427,000) |
|                                                                                                    |                                                                           |                                                         |  |  |
| Net loss  per share - basic and diluted                                                            |                                                                           |                                                         |  |  |
| Continuing  operations                                                                             | ($            .13) | ($         .03) | ($         .51) | ($         .34) |
| Discontinued  operations                                                                           | ($            .03) | ($         .01) | ($         .15) | ($         .04) |
| Net loss  applicable to common shareholders                                                        | ($            .14) | ($         .05) | ($         .62) | ($         .37) |
|                                                                                                    |                                                                           |                                                         |  |  |
| WEIGHTED  AVERAGE COMMON SHARES AND EQUIVALENTS

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

**GOODTIMES RESTAURANTS INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

----

** **
|                                                                                                                                                                                                                             | For the Nine Months Ended

June 30, |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------|
| CASH FLOWS  FROM OPERATING ACTIVITIES:                                                                                                                                                                                      | 2010                                | 2009 |
|             Net  loss                                                                                                                                                | ($2,582,000)                        | ($1,488,000) |
|             Loss  from discontinued operations                                                                                                                       | (597,000)                           | (153,000) |
|             Net  loss from continuing operations                                                                                                                     | (1,985,000)                         | (1,335,000) |
|                                                                                                                                                                                                                             |                                     |  |
|             Adjustments  to reconcile net loss to net cash                                                                                                           |                                     |  |
|              used  in operating activities:                                                                                                                     |                                     |  |
|             Depreciation  and amortization                                                                                                                           | 717,000                             | 876,000 |
|             Amortization  of debt issuance costs                                                                                                                     | 204,000                             | 7,000 |
|             Stock  based compensation expense                                                                                                                        | 66,000                              | 58,000 |
|             Unrealized  loss (gain) on interest rate swap                                                                                                            | (3,000)                             | 87,000 |
|             Accretion  of deferred rent                                                                                                                              | (125,000)                           | - |
|             Recognition  of deferred (gain) on sale of restaurant building                                                                                           | (22,000)                            | (22,000) |
|             Loss  on sale of restaurants                                                                                                                             | 62,000                              | - |
|             Changes  in operating assets and liabilities:                                                                                                            |                                     |  |
|             (Increase)  decrease in:                                                                                                                                 |                                     |  |
|             Receivables  and other                                                                                                                                   | (62,000)                            | - |
|             Inventories                                                                                                                                              | -                                   | 20,000 |
|             Deposits  and other                                                                                                                                      | (80,000)                            | - |
|             (Decrease)  increase in:                                                                                                                                 |                                     |  |
|             Accounts  payable                                                                                                                                        | 346,000                             | (263,000) |
|             Accrued  liabilities and deferred income                                                                                                                 | 318,000                             | (164,000) |
|             Net  cash used in operating activities from continuing operations                                                                                        | (564,000)                           | (736,000) |
|             Net  cash used in operating activities from discontinued operations                                                                                      | (144,000)                           | (85,000) |
|              Net  cash used in operating activities                                                                                                             | (708,000)                           | (821,000) |
|                                                                                                                                                                                                                             |                                     |  |
| CASH FLOWS  USED IN INVESTING ACTIVITIES                                                                                                                                                                                    |                                     |  |
|             Proceeds  from the sale of restaurants                                                                                                                   | 100,000                             | - |
|             Payments  for the purchase of property and equipment                                                                                                     | (54,000)                            | (277,000) |
|             Loans  made to franchisees and to others                                                                                                                 | -                                   | (31,000) |
|             Payments  received on loans to franchisees and to others                                                                                                 | 15,000                              | 26,000 |
|             Net  cash provided by (used in) investing activities                                                                                                     | 61,000                              | (282,000) |
|                                                                                                                                                                                                                             |                                     |  |
| CASH FLOWS  FROM FINANCING ACTIVITIES:                                                                                                                                                                                      |                                     |  |
|             Principal  payments on notes payable, and long-term debt                                                                                                 | (105,000)                           | (91,000) |
|             Borrowings  on notes payable and long-term debt                                                                                                          | 400,000                             | 185,000 |
|             Net  Proceeds (repayments) on revolving lines of credit                                                                                                  | -                                   | 320,000 |
|             Distributions,  net of contributions paid to non-controlling interests                                                                                   | 59,000                              | (54,000) |
|             Net  cash provided by financing activities                                                                                                               | 354,000                             | 360,000 |
|                                                                                                                                                                                                                             |                                     |  |
| NET CHANGE  IN CASH AND CASH EQUIVALENTS                                                                                                                                                                                    | (293,000)                           | (743,000) |
|                                                                                                                                                                                                                             |                                     |  |
| CASH AND  CASH EQUIVALENTS, beginning of period                                                                                                                                                                             | $815,000                            | $1,414,000 |
|                                                                                                                                                                                                                             |                                     |  |
| CASH AND  CASH EQUIVALENTS, end of period                                                                                                                                                                                   | $522,000                            | $671,000 |
|                                                                                                                                                                                                                             |                                     |  |
| SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION:                                                                                                                                                                         |                                     |  |
|             Cash  paid for interest                                                                                                                                  | $219,000                            | $207,000 |
|             Non-cash  fair value of warrants and beneficial conversion feature issued

            with  debt | $277,000                            | $42,000 |

** **

** **

**GOODTIMES RESTAURANTS INC. AND SUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**Note 1.Basis of Presentation**

----

** **

In the opinion of management,the accompanying unaudited condensed consolidated financial statements containall of the normal recurring adjustments necessary to present fairly thefinancial position of the Company as of June 30, 2010, the results of itsoperations and its cash flows for the three and nine month periods ended June30, 2010. Operating results for the three and nine month periods ended June 30,2010 are not necessarily indicative of the results that may be expected for theyear ending September 30, 2010. The condensed consolidated balance sheet as ofSeptember 30, 2009 is derived from the audited financial statements, but doesnot include all disclosures required by generally accepted accountingprinciples. As a result, these financial statements should be read inconjunction with the Company's Form 10-K for the fiscal year ended September30, 2009.

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

----

**Note 2. Liquidity**

As of June 30, 2010, we had aworking capital deficit of $2,378,000 due primarily to the following: 1) theentire note payable to Wells Fargo Bank, N.A. of $755,000 is shown as a currentliability due to certain loan covenant defaults that existed as of June 30,2010; 2) an $85,000 current liability related to the unrealized loss on ourinterest rate swap, as described in Note 10 below; 3) a current liability ofapproximately $430,000 related to 2009 accrued property taxes which will bepaid out of cash generated from operations through the end of fiscal 2010; 4) a$185,000 bridge loan that was due July 15, 2010 on which we are continuing tomake monthly payments of interest only; and 5) a $400,000 bridge loan with amaturity date of December 31, 2010. We anticipate both of the bridge loansbeing paid out of the proceeds from a larger recapitalization event.

For the nine months endedJune 30, 2010 we used approximately $708,000 for operating activities. If weare unable to raise additional operating capital during the remainder of fiscal2010 we may not be able to satisfy our liabilities as they come due and we maybe required to sell additional assets on terms which may not be as favorable asthey otherwise would be.

**Note 3. RecentDevelopments**

*Sale and Closing ofRestaurants*

In March 2010 we closed onecompany-owned dual branded restaurant in Commerce City, Colorado and enteredinto a long-term sublease with a third party. In June 2010 we closed oneunderperforming co-developed restaurant in Denver, Colorado and we are currentlynegotiating a contract to sell the restaurant and terminate the ground lease.See Note 5. below - Discontinued Operations.

On June 1, 2010 we sold ourinterest in one co-developed restaurant in Denver, Colorado to a new franchiseeowner operator. The sale resulted in net cash proceeds of $100,000 and a losson the sale of $64,000.

*New Loan Agreement*

As reported on Form 8k datedFebruary 3, 2010, the Company entered into a loan agreement with W Capital,John T. MacDonald and Golden Bridge, LLC (collectively "the Lender"),pursuant to which the Lender made a loan of $200,000, with up to an additional$200,000 loan available through April 30, 2010 (the "Loan"), to beused for restaurant marketing and other working capital uses of the Company. AtJune 30, 2010 the entire $400,000 had been advanced to the Company. 

----

The Loan is evidenced by aConvertible Secured Promissory Note dated February 1, 2010 (the"Note") made by the Company and shall bear interest at a rate of 12%per annum on the unpaid principal balance through August 1, 2010. The maturitydate for payment of all principal and interest on the Note is December 31,2010. However, if and to the extent that any portion of the Note is stilloutstanding after August 1, 2010, the interest rate will increase to 14% perannum from and after August 1, 2010 until the maturity date. All interestaccrues through the maturity date. The Loan Agreement contains customary eventof default provisions and a cross-default provision with respect to the loanagreement for the Wells Fargo Bank and PFGI II, LLC loans in the event ofpayment default on either of those loans. Upon the occurrence and continuanceof an event of default, the Lender may declare all or part of the unpaidprincipal and accrued and unpaid interest on the Loan due and payable. Anyamounts not paid to the Lender when due will bear interest from the due dateuntil paid at a rate of 16% per annum.

The Loan Agreement and theNote are subject to the terms of a Leasehold Deed of Trust Agreement andSecurity Agreement with respect to certain of GTDT's restaurants that were notpreviously pledged as collateral under the Wells Fargo Bank or PFGI II, LLCborrowings. The Note is convertible into shares of common stock of the Company(the "Conversion Shares") at any time prior to repayment at aconversion price of 25% less than the average price of the Company's commonstock during the 20 days prior to the conversion date, provided however thatthe conversion price shall not be below $.75 per share nor above $1.08 per share(the "Conversion Price").

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

Effective April 1, 2010 andas reported on Form 8k the Company entered into a First Amendment to Loan Agreement(the "First Amendment") which amends that certain Loan Agreement,dated February 1, 2010 (the "Loan Agreement"). As a result ofregulatory concerns, the effect of the First Amendment was to replace GoldenBridge as a Lender Party under the Loan Agreement with W Capital and McDonaldon the same terms and conditions that applied to Golden Bridge. 

Pursuant to the FirstAmendment, the Secured Convertible Promissory Note, dated February 1, 2010,issued by the Company and GTDT to Golden Bridge, W Capital and McDonald, wascancelled in its entirety. The Company issued a new Secured ConvertiblePromissory Note (the "New Note") to W Capital and McDonald datedApril 1, 2010. 

----

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

*PFGI II LLC Amended LoanAgreement*

Effective January 2, 2010 andas reported on Form 8k, the Company entered into an agreement to amend its loanwith PFGI II LLC. The maturity date was extended to December 31, 2012, theinterest rate was increased to 8.65% and monthly payments of principal andinterest are payable beginning January 31, 2010, based upon a 25 yearamortization prior to maturity. In connection with the agreement the Companyalso issued in January 2010 112,612 warrants exercisable at $1.11. The fairvalue of the warrants of $79,000 will be accredited to interest over the termof the loan.

*Special CommitteeFormation*

On August 14, 2009 and asreported on our Form 10k for the period ending September 30, 2009, we announcedthat our Board of Directors has formed a Special Committee comprised ofdirectors Richard Stark, Alan Teran and Geoff Bailey to explore and evaluatestrategic alternatives aimed at enhancing shareholder value and explorealternatives to reduce the cost burdens of being a publicly held entity. TheCompany has hired Mastodon Ventures, Inc. to provide strategic advisoryservices and explore other strategic alternatives intended to further thelong-term business prospects of the Company and provide incremental valueto its shareholders. 

There can be no assuranceregarding the timing of or whether the Board will elect to pursue any of thestrategic alternatives it may consider, or that any such alternatives willresult in changes to the Company's plans or will be consummated and there is nocertainty that any strategic alternative will involve a transaction forshareholders at a share price equal to or above thecurrent trading price of the Company's shares, bearing in mind thatthe trading market for the Company's shares is relatively inactive and that theCompany has realized losses from operations during recentperiods.  The Company does not intend to provide updates or make anyfurther comment until the outcome of the process is determined or until thereare significant developments. We anticipate that we will extend the agreementwith Mastodon Ventures, Inc. beyond the initial six month engagement period.

**Note 4. Debt CovenantCompliance**

----

As reported on the form 8-Kfiled on January 23, 2009, we are in default of certain technical loancovenants on our note payable to Wells Fargo Bank, N.A. ("the Bank").Therefore all amounts owing under this facility are reflected as current in theaccompanying Condensed Consolidated Balance Sheet as of June 30, 2010. We havenever been in payment default on the note. On February 9, 2009 we received aReservation of Rights letter from the Bank formally notifying us of the defaultof the Earnings Before Interest Taxes and Depreciation ("EBITDA")Coverage Ratio of not less than 1.5 to 1.0 and the Tangible Net Worth of notless than $5,000,000 as set forth in the Credit Agreement for the period endingDecember 31, 2008. The letter serves as notice that notwithstanding theforegoing events of default, the Bank is reserving all of its rights andremedies under the Credit Agreement and related agreements.

The Bank is not acceleratingthe Loan at this time and is continuing to accept regularly scheduled paymentsof principal and interest under the Loan, however the acceptance of paymentsunder the Loan does not constitute a modification of the Credit Agreement or awaiver of any of the covenants or of the Bank's rights or remedies under theCredit Agreement, including the right to accelerate the loan in the futureafter the giving of notice. We will continue to work with the Bank on aRequired Corrective Action for compliance with existing or modified loancovenants. There can be no assurance that the Bank will agree to modify orwaive any of the loan covenants or waive any of its rights or remedies underthe Credit Agreement and we would require additional financing to repay theloan balance. The loan is secured by security agreements in the equipment offour restaurants.

**Note 5. DiscontinuedOperations**

During the six months endedJune 30, 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. The loss from discontinued operations includes both thecurrent and historical results of operations, the fair value of all futurelease obligations and an impairment charge to write down the fixed assets tobook value. Fixed assets of $1,164,000 and $1,164,000 of associated accumulateddepreciation related to discontinued operations are included in the propertyand equipment of our condensed consolidated balance sheet. Current andlong-term liabilities related to discontinued operations relate to the futureestimated lease obligations.

Following is a summary of thecosts from discontinued operations for the current and prior year periods:

|  | Three  Months Ended |  | Nine  Months Ended |
|--|---------------------|--|--------------------|
|  | June  30,           |  | June  30,          |

|                                           | 2010     | 2009    |  | 2010     | 2009     |
|-------------------------------------------|----------|---------|--|----------|----------|
| Results of operations                     | $31,000  | $42,000 |  | $166,000 | $153,000 |
| Future lease obligations,  fair value     | 49,000   | -       |  | 168,000  | -        |
| Asset impairment charges  and other costs | 46,000   | -       |  | 263,000  | -        |
| Loss from discontinued  operations   | $126,000 | $42,000 |  | $597,000 | $153,000 |

** **

----

**With respect to the closedlocations, we have continuing lease obligations of $1,111,000. We havesubleased the Commerce City location for $642,000. We anticipate we cansublease the Denver location within six months and we have recorded anestimated liability of $35,000. To the extent that we are not successful in ourefforts to sublease the Denver location within this estimated time periodadditional losses may be recorded in future periods.**

**Note 6. Stock-BasedCompensation**

The Company measures thecompensation cost associated with share-based payments by estimating the fairvalue of stock options as of the grant date using the Black-Scholes optionpricing model. The Company believes that the valuation technique and theapproach utilized to develop the underlying assumptions are appropriate incalculating the fair values of the Company's stock options granted during allyears presented. Estimates of fair value are not intended to predict actualfuture events or the value ultimately realized by the employees who receiveequity awards.

Our net loss for the ninemonths ended June 30, 2010 and June 30, 2009 includes $66,000 and $58,000,respectively, of compensation costs related to our stock-based compensationarrangements.

During the nine months endedJune 30, 2010, we granted 12,000 non-statutory stock options and 30,606incentive stock options both with exercise prices of $1.15. The per shareweighted average fair value was $.85 for the non-statutory stock option grantsand $.84 for the incentive stock option grants.

In addition to the exerciseand grant date prices of the awards, certain weighted average assumptions thatwere used to estimate the fair value of stock option grants are listed in thefollowing table:

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

We estimate expectedvolatility based on historical weekly price changes of our common stock for aperiod equal to the current expected term of the options. The risk-freeinterest rate is based on the United States treasury yields in effect at thetime of grant corresponding with the expected term of the options. The expectedoption term is the number of years we estimate that options will be outstandingprior to exercise considering vesting schedules and our historical exercisepatterns.

----

SFAS 123(R) requires the cashflows resulting from the tax benefits for tax deductions in excess of thecompensation expense recorded for those options (excess tax benefits) to beclassified as financing cash flows. These excess tax benefits were $0 for thethree and nine month periods ended June 30, 2010.

A summary of stock optionactivity under our share-based compensation plan for the nine months ended June30, 2010 is presented in the following table:

|                          | **Options**    | **Weighted  Average Exercise Price** | **Weighted  Average Remaining Contractual**

**Life (Yrs.)** | **Aggregate  Intrinsic Value** |
|--------------------------|----------------|--------------------------------------|--------------------------------------------------------------|--------------------------------|
| Outstanding-beg of year  | 379,231        | $3.55                                |                                                              |                                |
| Granted                  | 42,606         | $1.15                                |                                                              |                                |
| Exercised                | -              |                                      |                                                              |                                |
| Forfeited                |    -      |                                      |                                                              |                                |
| Expired                  |  (24,431) | $3.12                                |                                                              |                                |
| Outstanding Jun 30, 2010 | 397,406        | $3.32                                | 5.6                                                          | $0                             |
| Exercisable Jun 30, 2010 | 274,510        | $3.77                                | 4.4                                                          | $0                             |

As of June 30, 2010, thetotal remaining unrecognized compensation cost related to unvested stock-basedarrangements was $73,000 and is expected to be recognized over a period of 2.33years. 

There were no stock optionsexercised during the nine months ended June 30, 2010.

**Note 7. ComprehensiveIncome (Loss)**

Comprehensive income includesnet income or loss, changes in certain assets and liabilities that are reporteddirectly in equity such as adjustments resulting from unrealized gains orlosses on held-to-maturity investments and certain hedging transactions.

In May 2007, the Companyentered into an interest rate swap agreement, designated as a cash flow hedge,which hedges the Company's exposure to interest rate fluctuations on theCompany's floating rate $1,100,000 term loan. The contract requires monthlysettlements of the difference between the amounts to be received and paid underthe agreement, the amount of which is recognized in current earnings asinterest expense.

----

As of December 31, 2008 andcontinuing through June 30, 2010 we are in default of certain technicalcovenants on the underlying term loan (see note 3 above) and we have thereforerecognized an unrealized gain of $3,000 for the nine months ended June 30, 2010in the accompanying Condensed Consolidated Statement of Operations. As long asthe underlying loan is in covenant default we will adjust the unrealized gainor loss through the statement of operations as non-cash income or expense.

**Note 8. ContingentLiabilities**

We remain contingently liableon various land leases underlying restaurants that were previously sold tofranchisees. We have never experienced any losses related to these contingentlease liabilities, however if a franchisee defaults on the payments under theleases, we would be liable for the lease payments as the assignor or sublessorof the lease. Currently we have not been notified nor are we aware of anyleases in default by the franchisees, however there can be no assurance thatthere will not be in the future which could have a material effect on ourfuture operating results.

**Note 9. Related PartyTransactions**

The Company entered into aloan agreement with Golden Bridge, LLC ("Golden Bridge"), pursuant towhich Golden Bridge made a loan of $185,000 to the Company. Eric Reinhard, RonGoodson, David Grissen, Richard Stark, and Alan Teran, who are all members ofthe Company's Board of Directors and stockholders of the Company, are the solemembers of Golden Bridge. Eric Reinhard is the sole manager of Golden Bridge.The Company's and GTDT's obtainingof the Loan from Golden Bridge and related transactions were duly approved inadvance by the Company's Board of Directors by the affirmative vote of membersthereof who did not have an interest in the transaction.   See Item2, *Financing Transactions* below for the terms of the loan.  Amountsdue to related parties that are included in notes payable are $185,000 at June30, 2010 and 2009.

**Note 10. Assets Held forSale**

We have classified $1,595,000as assets held for sale in the accompanying condensed consolidated balancesheet. These costs are related to a site in Firestone, Colorado which has beenfully developed. The proceeds of a sale leaseback transaction, if consummated,are required to be used for the reduction of the line of credit payable to PFGIII, LLC. The effect on our operating cash flow is not material as the interestexpense on the line of credit is approximately equal to the proposed rentalrate on a sale leaseback transaction.

**Note 11. Impairment ofLong-Lived Assets**

----

We review our long-livedassets for impairment in accordance with the guidance of FASB ASC 360-10,Property, Plant, and Equipment, including land, property and equipment wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. Recoverability of assets to be held and used ismeasured by a comparison of the capitalized costs of the assets to the futureundiscounted net cash flows expected to be generated by the assets and the expectedcash flows are based on recent historical cash flows at the restaurant level(the lowest level that cash flows can be determined).

An analysis was performed ona restaurant by restaurant basis at June 30, 2010. Assumptions used inpreparing expected cash flows were as follows: 
    Sales      projections are as follows: Fiscal 2010 sales are projected to be down      3-5% with respect to fiscal 2009, for fiscal years 2011 to 2024 we have      used annual increases of 2% to 3%. We believe the 2% to 3% increase in      the years beyond 2010 is a reasonable expectation of growth and that it      would be unreasonable to expect less 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% per year.
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 remain flat in relation to our current      fiscal 2010 food and packaging costs as a percentage of sales.
Salvage      value has been estimated on a restaurant by restaurant basis considering      each restaurant's particular equipment package and building size.

Given the results of ourimpairment analysis at June 30, 2010 we did not record any impairment as theirprojected undiscounted cash flows show recoverability of their asset values.

Our impairment analysisincluded a sensitivity analysis with regard to the cash flow projections thatdetermine the recoverability of each restaurant's assets. The results indicatethat even with a 15% decline in our projected cash flows we would still nothave any potential impairment issues. We have experienced higher than normalfood and packaging costs as a percentage of restaurant sales in recent yearsand we do not believe these costs will remain at these levels in future years.However for purposes of our cash flow projections in the asset impairmentanalysis we have assumed our food and packaging costs will remain at thesehigher levels.

Each time we conduct animpairment analysis in the future we will compare actual results to our projectionsand assumptions, and to the extent our actual results do not meet expectations,we will revise our assumptions and this could result in impairment chargesbeing recognized.

----

All of the judgments andassumptions made in preparing the cash flow projections are consistent with ourother financial statement calculations and disclosures. The assumptions used inthe cash flow projections are consistent with other forward-looking informationprepared by the Company, such as those used for internal budgets, discussionswith third parties, and/or reporting to management or the Board of Directors.

To date we have not writtendown any assets due to impairment, however projecting the cash flows for theimpairment analysis involves significant estimates with regard to theperformance of each restaurant, and it is reasonably possible that theestimates of cash flows may change in the near term resulting in the need towrite down operating assets to fair value. If the assets are determined to beimpaired, the amount of impairment recognized is the amount by which thecarrying amount of the assets exceeds their fair value. Fair value would bedetermined using forecasted cash flows discounted using an estimated averagecost of capital and the impairment charge would be recognized in income fromoperations.

**Note 12. Fair ValueMeasurements**

The Company adopted theprovisions of FASB ASC 820, Fair Value Measurements and Disclosures, effectiveOctober 1, 2008. FASB ASC 820 defines fair value, establishes a framework formeasuring fair value under generally accepted accounting principles and enhancesdisclosures about fair value measurements.

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

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

Level 1: Quoted market pricesin active markets for identical assets and liabilities.

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

Level 3: Unobservable inputsthat are not corroborated by observable market data.

The following tablesummarizes financial assets and liabilities that are measured at fair value ona recurring basis as of June 30, 2010:

----

Level2

InterestRate Swap liability  $85,000

**Note 13. Income Taxes**

We account for income taxesin accordance with FASB ASC 740, Income Taxes. FASB ASC 740 prescribes the useof the liability method whereby deferred tax asset and liability accountbalances are determined based on differences between the financial reportingand tax bases of assets and liabilities and are measured using the enacted taxrates and laws that will be in effect when the differences are expected toreverse. The Company provides a valuation allowance, if necessary, to reducedeferred tax assets to their estimated realizable value. The deferred taxassets are reviewed periodically for recoverability, and valuation allowancesare adjusted as necessary. We believe it is more likely than not that therecorded deferred tax assets will be realized.

Although the Company has notincurred interest and penalties associated with unrecognized tax benefits;future interest and penalties associated with unrecognized tax benefits, ifany, will be recognized in income tax expense in the Consolidated Statements ofOperations and the corresponding liability in income taxes payable orincome taxes receivable, net on the Consolidated Balance Sheets.

The Company is currently notundergoing any examinations by any taxing jurisdictions, with the tax years forthe Fiscal Years Ending September 30, 2005 through 2009 remaining open toexamination.

**Note 14. Non-controllingInterests**

The Company adopted theprovisions of FASB ASC 810,Consolidation, effective October 1, 2009. FASB ASC 810 requiresnon-controlling interests, previously called minority interests, to bepresented as a separate item in the equity section of the consolidated balancesheet. It also requires the amount of consolidated net income or lossattributable to non-controlling interests to be clearly presented on the faceof the consolidated income statement. Additionally, Topic 810 clarifies thatchanges in a parent's ownership interest in a subsidiary that do not result indeconsolidation are equity transactions, and that deconsolidation of asubsidiary requires gain or loss recognition in net income based on the fairvalue on the deconsolidation date. Topic 810 was applied prospectively with theexception of presentation and disclosure requirements, which were appliedretrospectively for all periods presented, and did not significantly change thepresentation of our consolidated financial statements.

**Note 15. Subsequent Events**

----

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

**Note 16. Recent AccountingPronouncements**

In January 2010, theFASB issued an update regarding guidance over the disclosure requirements offair value measurements.  This update adds new requirements for disclosureabout transfers into and out of Levels One and Two and also adds additionaldisclosure requirements about purchases, sales, issuances, and settlementsrelating to Level Three measurements.  The guidance is effective forreporting periods beginning after December 15, 2009 for the disclosurerequirements around Levels One and Two measurements, and is effective forreporting periods beginning after December 15, 2010 for the disclosurerequirements around Level Three.  This new guidance currently has noimpact on the fair value disclosures of the Company, as there have been notransfers out of Levels One or Two.

In June 2009, the FASB issuedFASB ASC 105, Generally Accepted Accounting Principles, which establishes theFASB Accounting Standards Codification as the sole source of authoritativegenerally accepted accounting principles. Pursuant to the provisions of FASBASC 105, the Company has updated references to GAAP in its financial statementsissued for the period ended June 30, 2010. The adoption of FASB ASC 105 did notimpact the Company's financial position or results of operations.

In June 2008, the FASB issuedFASB ASC 815-40, Derivatives and Hedging, that provides guidance on how todetermine if certain instruments (or embedded features) are considered indexedto a company's own stock, including instruments similar to warrants to purchasethe company's stock. FASB ASC 815-40 requires companies to use a two-stepapproach to evaluate an instrument's contingent exercise provisions andsettlement provisions in determining whether the instrument is considered to beindexed to its own stock and therefore exempt from the application of FASB ASC815. Although FASB ASC 815-40 was effective for our fiscal year beginningOctober 1, 2009, any outstanding instrument at the date of adoption willrequire a retrospective application of the accounting through a cumulativeeffect adjustment to retained earnings upon adoption. The adoption of FASB ASC815-40 did not impact the Company's financial position or results ofoperations. The requirements of FASB ASC 815-40 will only impact futurederivative or hedging transactions into which we may enter.

----

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

**Note 17. StockTransactions**

None.

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

**            AND RESULTS OFOPERATIONS**

**General**

This Form 10-Q contains orincorporates by reference forward-looking statements within the meaning ofSection 27A of the Securities Act of 1933, as amended and the disclosure ofrisk factors in the Company's form 10-K for the fiscal year ended September 30,2009. Also, documents subsequently filed by us with the SEC and incorporatedherein by reference may contain forward-looking statements. We cautioninvestors that any forward-looking statements made by us are not guarantees offuture performance and actual results could differ materially from those in theforward-looking statements as a result of various factors, including but notlimited to the following:
    - 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.
    - We may be     negatively impacted if we continue to 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 negativelyimpacted by other factors common to the restaurant industry such as: changes inconsumer tastes away from red meat and fried foods; increases in the cost offood, paper, labor, health care, workers' compensation or energy; inadequate numberof hourly paid employees; and/or decreases in the availability of affordablecapital resources. We caution the reader that such risk factors are notexhaustive, particularly with respect to future filings.

----

*Restaurant Locations*

We currently operate and franchisea total of forty-nine Good Times restaurants, of which forty-five are inColorado, with forty in the Denver greater metropolitan area, three in ColoradoSprings, one in Grand Junction and one in Silverthorne. Seven of theserestaurants are "dual brand", operated pursuant to a Dual Brand TestAgreement with Taco John's International, of which there is one in NorthDakota, two in Wyoming, and four in Colorado.
|                                         | **Total** | **Denver, CO**

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

**Other** | **Idaho** | **Wyoming** | **North Dakota** |
|-----------------------------------------|-----------|-----------------------------------|-------------------------|-----------|-------------|------------------|
| Good Times co-owned &  co-developed | 25        | 22                                | 3                       |           |             |                  |
| Good Times franchised                   | 17        | 14                                | 2                       | 1         |             |                  |
| Dual brand co-owned                     | 2         | 2                                 |                         |           |             |                  |
| Dual brand franchised                   | 5         | 2                                 |                         |           | 2           | 1                |
| **Total**                               | **49**    | **40**                            | **5**                   | **1**     | **2**       | **1**            |
|                                 | **As  of June 30** |
|---------------------------------|--------------------|
|                                 | **2009**           | **2010** |
| Company-owned restaurants       | 21                 | 20 |
| Co-developed restaurants        | 9                  | 7 |
| Franchise operated  restaurants | 22                 | 22 |
| **Total  restaurants**          | **52**             | **49** |

* *

----

*Fiscal 2009:* In October 2008 we opened one newcompany-owned restaurant in Firestone, Colorado. In December 2008 a Wyomingfranchisee terminated their Good Times franchise agreement in the dual brandconcept and has stopped selling Good Times products in one location. Also inDecember 2008 a franchisee opened a new dual brand restaurant in Sheridan,Wyoming.

*Fiscal 2010:* In October 2009 a franchiseeoperating a Good Times restaurant in Thornton, Colorado terminated theirfranchise agreement and closed the restaurant. In March 2010 we closed onecompany-owned dual branded restaurant in Commerce City, Colorado and in June2010 we closed one co-developed Good Times restaurant in Denver, Co (see Note5. above - Discontinued Operations). Additionally in June 2010 we sold one co-developedrestaurant in Denver, Co to a new franchisee operator. We anticipate that wemay close up to three low volume franchised restaurants in fiscal 2010. 

The following presentscertain historical financial information of our operations. This financialinformation includes results for the three and nine months ended June 30, 2010and results for the three and nine months ended June 30, 2009.

**Results of Operations**

*Net Revenues*

Net revenues for the threemonths ended June 30, 2010 decreased $464,000 (7.7%) to $5,565,000 from$6,029,000 for the three months ended June 30, 2009. Same store restaurantsales decreased $315,000 (6.3%) during the three months ended June 30, 2010 forthe restaurants that were open for the full three month periods ending June 30,2010 and June 30, 2009. Restaurants are included in same store sales after theyhave been open a full fifteen months and only Good Times restaurants areincluded with dual branded restaurants excluded. Restaurant sales decreased$94,000 due to one co-developed store sold to a franchisee in June 2010.Restaurant sales decreased $36,000 due to two company-owned dual brandedrestaurants not included in same store sales. Restaurant sales decreased $8,000due to one non-traditional company-owned restaurant not included in same storesales.

Net revenues for the ninemonths ended June 30, 2010 decreased $1,575,000 (9.4%) to $15,102,000 from$16,677,000 for the nine months ended June 30, 2009. Same store restaurantsales decreased $1,237,000 (9.0%) during the nine months ended June 30, 2010for the restaurants that were open for the full nine month periods ending June30, 2010 and June 30, 2009. Restaurants are included in same store sales afterthey have been open a full fifteen months and only Good Times restaurants areincluded with dual branded restaurants excluded. Restaurant sales decreased$136,000 due to one co-developed store sold to a franchisee in June 2010.Restaurant sales decreased $61,000 due to two company-owned dual brandedrestaurants not included in same store sales. Restaurant sales decreased$80,000 due to one non-traditional company-owned restaurant not included insame store sales.

----

Our first, second and thirdquarter same store restaurant sales declines of 11.4%, 9.4% and 6.3%,respectively, reflect the adverse impact the macroeconomic environment ishaving on consumers' discretionary spending and the proliferation of heavypromotion of $1 value menus and discounting by competitors. In addition adverseweather conditions in October and December 2009, and February and May 2010 hada negative effect on our restaurant sales. October 2009 in Colorado was thesecond coldest and fifth snowiest October on record and a late month snow stormcaused the closure of our restaurants for most of one day. We have experiencedsome moderation of our same store sales declines since mid May 2010. June andJuly 2010 same store sales were down 1.8% and 1.6%, respectvely.

Our outlook for fiscal 2010remains cautious as the economic pressures may continue to impact consumerspending and we anticipate that we will continue to face increased competitivepricing pressure.

While we are implementingseveral broad product and brand initiatives during fiscal 2010 to improve ourcore value proposition, we are not planning to implement a broader $1 menu andour sales may be adversely affected during the economic recession.

Franchise revenues decreased$11,000 to $127,000 from $138,000 for the three months ended June 30, 2009primarily due to a decrease in franchise royalties. Same store Good Timesfranchise restaurant sales decreased 8% during the three months ended June 30,2010 for the franchise restaurants that were open for the full periods endingJune 30, 2010 and June 30, 2009. Dual branded franchise restaurant sales decreased16.6% during the three months ended June 30, 2010, compared to the same prioryear period.

Franchise revenues decreased$61,000 to $351,000 from $412,000 for the nine months ended June 30, 2010primarily due to a decrease in franchise royalties. Same store Good Timesfranchise restaurant sales decreased 10.7% during the nine months ended June30, 2010 for the franchise restaurants that were open for the full periodsending June 30, 2010 and June 30, 2009. Dual branded franchise restaurant salesdecreased 19.4% during the nine months ended June 30, 2010, compared to thesame prior year period.

*Restaurant Operating Costs*

Restaurant operating costs asa percent of restaurant sales were 93.9% during the three months ended June 30,2010 compared to 91.8% in the same prior year period and were 98.7% during ninemonth period ended June 30, 2010 compared to 95.2% in the same prior yearperiod.

The changes inrestaurant-level costs are explained as follows:

----

|                                                            | Three  Months Ended

June  30, 2010 | Nine  Months Ended

June  30, 2010 |
|------------------------------------------------------------|-------------------------------------|------------------------------------|
| Restaurant-level costs for  the period ended June 30, 2009 | 91.8%                               | 95.2%                              |
| Increase in food and  packaging costs                      | 1.8%                                | 1.1%                               |
| Increase in payroll and  other employee benefit costs      | 1.9%                                | 1.5%                               |
| Increase in occupancy and  other operating costs           | 1.2%                                | 2.3%                               |
| Decrease in depreciation  and amortization                 | (.5%)                               | (.5%)                              |
| Decrease in opening costs  and deferred rent               | (2.3%)                              | (.9%)                              |
| Restaurant-level costs for  the period ended June 30, 2010 | 93.9%                               | 98.7%                              |

*Food and Packaging Costs*

For the three months endedJune 30, 2010 our food and paper costs, decreased $55,000 to $1,956,000 (36% ofrestaurant sales) from $2,011,000 (34.1% of restaurant sales) compared to thesame prior year period.

For the nine months endedJune 30, 2010 our food and paper costs, decreased $338,000 to $5,139,000 (34.8%of restaurant sales) from $5,477,000 (33.7% of restaurant sales) compared tothe same prior year period.

During fiscal 2009 weexperienced a moderation in our food and packaging costs when our weighted foodand packaging costs increased approximately 2%. We took cumulative weightedmenu price increases during fiscal 2009 of approximately 2.6%.

During the nine months endedJune 30, 2010 we experienced an increase in our weighted average food andpackaging costs of 6.2%, including significant increases in beef, bacon andsoda syrup. We anticipate continued upward pressure on our commodity costs forthe balance of fiscal 2010. We implemented an approximately 3.8% weighted averagemenu price increase in May 2010, however the effect of the menu price increaseto our restaurant sales was partially offset by the implementation of pricepromotions. We are implementing additional price, portion and purchasinginitiatives and anticipate a reduction of 1.5% to 2% in our food and packagingcosts as a percentage of restaurant sales by September 2010. 

*Payroll and Other EmployeeBenefit Costs*

For the three months endedJune 30, 2010 our payroll and other employee benefit costs decreased $50,000 to$1,905,000 (35% of restaurant sales) from $1,955,000 (33.2% of restaurantsales) compared to the same prior year period.

----

For the nine months ended June30, 2010 our payroll and other employee benefit costs decreased $313,000 to$5,438,000 (36.9% of restaurant sales) from $5,751,000 (35.4% of restaurantsales) compared to the same prior year period.

The increase in payroll andother employee benefit expenses as a percent of restaurant sales for the threeand nine month periods ended June 30, 2010 is primarily the result of lowerrestaurant sales. Because payroll costs are semi-variable in nature theyincrease as a percentage of restaurant sales when there is a decrease inrestaurant sales. 

In July 2010 we eliminatedapproximately $80,000 of annual payroll costs through salary reductions andsalary eliminations. 

*Occupancy and OtherOperating Costs*

For the three months endedJune 30, 2010 our occupancy and other operating costs decreased $20,000 to$1,127,000 (20.7% of restaurant sales) from $1,147,000 (19.5% of restaurantsales) compared to the same prior year period.

For the nine months endedJune 30, 2010 our occupancy and other operating costs increased $24,000 to$3,389,000 (23% of restaurant sales) from $3,365,000 (20.7% of restaurantsales) compared to the same prior year period.

For the three month periodended June 30, 2010 we experienced increases in utility costs and repairs andmaintenance costs compared to the same prior year period, however theseincreases were offset by decreases in all other operating costs. During thequarter ending June 30, 2010 we successfully negotiated the reduction of baserents at four company-owned restaurants. The reductions will result in totalsavings of approximately $96,000 per year. We are negotiating rent reductionson additional restaurants.

For the nine month periodended June 30, 2010 we experienced increases in utility costs, repairs andmaintenance costs, and property taxes compared to the same prior year period,however these increases were partially offset by decreases in all otheroperating costs. Occupancy and other operating costs may increase as a percentof sales as new company-owned restaurants are developed due to higher rentassociated with sale-leaseback operating leases, as well as higher propertytaxes at those locations.

*Opening Costs*

For the three months endedJune 30, 2010 and June 30, 2009 our new store opening costs were$0. For the nine months ended June 30, 2010 our new store opening costswere $0 compared to $15,000 in the same prior year period. The prior year costsare related to a new company-owned restaurant that opened in October 2008.

*Depreciation andAmortization*

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For the three months endedJune 30, 2010, our depreciation and amortization decreased $49,000 to $245,000(4.5% of restaurant sales) from $294,000 (5% of restaurant sales) compared tothe same prior year period.

For the nine months endedJune 30, 2010, our depreciation and amortization decreased $159,000 to $717,000(4.9% of restaurant sales) from $876,000 (5.4% of restaurant sales) compared tothe same prior year period.

The decrease in depreciationand amortization for the three and nine month periods ended June 30, 2010 isprimarily due to declining depreciation expense in our aging company-owned andco-developed restaurants.

*General and AdministrativeCosts*

For the three months endedJune 30, 2010, general and administrative costs increased $15,000 to $361,000(6.5% of total revenues) from $346,000 (5.7% of total revenues) for the sameprior year period.

The increase in general andadministrative costs for the three months ended June 30, 2010 compared to thesame prior year period is primarily attributable to increases in professionalservices of $13,000, vacant land costs of $8,000 and increase in othermiscellaneous expenses offset by decreases in payroll and employee benefitcosts of $19,000.

For the nine months endedJune 30, 2010, general and administrative costs decreased $141,000 to$1,096,000 (7.3% of total revenues) from $1,238,000 (7.4% of total revenues)for the same prior year period. 

The decrease in general andadministrative costs for the nine months ended June 30, 2010 compared to thesame prior year period is primarily attributable to decreases in: 1) payrolland employee benefit costs of $106,000, 2) training and recruiting expenses of$16,000 and 3) professional services of $38,000; offset by a decrease inmiscellaneous income related to the elimination by the state and local taxingauthorities of sales tax collection fees.

In July 2010 we implementedadditional salary reductions which will result in annual savings in payroll andemployee benefit costs of approximately $89,000. 

*Advertising Costs*

For the three months endedJune 30, 2010 advertising costs decreased $22,000 to $312,000 (5.7% ofrestaurant sales) from $334,000 (5.7% of restaurant sales) for the same prioryear period.

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For the nine months endedJune 30, 2010 advertising costs decreased $72,000 to $862,000 (5.8% ofrestaurant sales) from $934,000 (5.7% of restaurant sales) for the same prioryear period.

The decrease in advertisingcosts for the three and nine month periods is primarily due to the decrease inrestaurant sales, as contributions are made to the advertising materials fundand regional advertising cooperative based on a percentage of sales. Inaddition, for the nine month period ended June 30, 2010 $9,000 of payroll andemployee benefit costs have been eliminated in the current period due to theretirement of our Vice President of Marketing in November 2008. We currentlyhave no plans to fill the position in the immediate future.

*Franchise Costs*

For the three months endedJune 30, 2010, franchise costs decreased $5,000 to $30,000 (.5% of totalrevenues) from $35,000 (.6% of total revenues) for the same prior year period.

For the nine months endedJune 30, 2010, franchise costs decreased $13,000 to $95,000 (.6% of totalrevenues) from $108,000 (.6% of total revenues) for the same prior year period.The decrease in franchise costs for the nine month period is primarilyattributable to a reduction in franchise opening support costs compared to thesame prior year period.

*Loss on Sale of Assets*

For the three months endedJune 30, 2010, our loss on the sale of assets increased $62,000 to $55,000 froma gain of $7,000 for the same prior year period. The current three month periodending June 30, 2010 includes a loss of $64,000 related to a co-developedrestaurant sold to a franchisee in June 2010.

For the nine months endedJune 30, 2010, our loss on the sale of assets increased $63,000 to $40,000 froma gain of $23,000 for the same prior year period, the increase is attributableto the $64,000 loss related to a co-developed restaurant sold to a franchiseein June 2010.

*Loss from Operations*

We had a loss from operationsof ($300,000) in the three months ended June 30, 2010 compared to a loss fromoperations of ($86,000) for the same prior year period.

We had a loss from operationsof ($1,548,000) in the nine months ended June 30, 2010 compared to a loss fromoperations of ($1,065,000) for the same prior year period.

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The increase in loss fromoperations for the three and nine month periods is due primarily to thedecrease in net revenues offset by other matters discussed in the"Restaurant Operating Costs", "General and AdministrativeCosts", "Franchise Costs" and "Loss on Sales ofAssets" sections of Item 2 above.

*Loss from ContinuingOperations*

The net loss from continuingoperations was ($507,000) for the three months ended June 30, 2010 compared toa net loss from continuing operations of ($135,000) for the same prior yearperiod. The change from the three month period ended June 30, 2009 to June 30,2010 was attributable to the increase in loss from operations for the threemonths ended June 30, 2010, as well as: 1) an increase in net interest expenseof $122,000 compared to the same prior year period; and 2) a decrease in theunrealized gain related to our interest rate swap liability of $36,000 comparedto the same prior year period. Net interest expense for the three months endedJune 30, 2010 includes non-cash amortization of debt issuance costs of $114,000related to: 1) the extension of the PFGI II loan in January, 2010; 2) the loanagreement with W Capital and John T. MacDonald entered into in February 2010;and 3) the loan agreement with Golden Bridge LLC entered into in April, 2009.(See "Note 3. Recent Developments" of Item 1 above).

The net loss from continuingoperations was ($1,985,000) for the nine months ended June 30, 2010 compared toa net loss from continuing operations of ($1,335,000) for the same prior yearperiod. The change from the nine month period ended June 30, 2009 to June 30,2010 was attributable to the increase in loss from operations for the ninemonths ended June 30, 2010, as well as: 1) an increase in net interest expenseof $257,000 compared to the same prior year period; and 2) an increase in theunrealized gain related to our interest rate swap liability of $90,000 comparedto the same prior year period. Net interest expense for the nine months endedJune 30, 2010 includes non-cash amortization of debt issuance costs of $204,000related to: 1) the extension of the PFGI II loan in January, 2010; 2) the loanagreement with W Capital and John T. MacDonald entered into in February 2010;and 3) the loan agreement with Golden Bridge LLC entered into in April, 2009.(See "Note 3. Recent Developments" of Item 1 above)

*Loss from DiscontinuedOperations*

The loss from discontinuedoperations for the three and nine month periods ended June 30, 2010 and 2009include results attributable to our Commerce City, Colorado dual-brandedrestaurant that was closed in March 2010 and our Denver, Colorado co-developedrestaurant that was closed in June 2010. The three and nine month periods endedJune 30, 2010 include the results of operations, the fair value of all futurelease obligations and an impairment charge to write down the fixed assets tobook value. The three and nine month periods ended June 30, 2009 represent theresults of operations.

**Liquidity and CapitalResources**

*Cash and Working Capital*

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As of June 30, 2010, we had$522,000 in cash and cash equivalents on hand. We currently plan to use thecash balance and any cash generated from operations for our working capitalneeds in fiscal 2010. In February, 2010 we secured a short term loan of$400,000 to be used as working capital (see "Financing Transactions"below). Additionally, we may contemplate the sale or sublease of selectedunderperforming restaurants in fiscal 2010 

As of June 30, 2010, we had aworking capital deficit of $2,378,000 due primarily to the following: 1) theentire note payable to Wells Fargo Bank, N.A. of $755,000 shown as a currentliability due to certain loan covenant defaults that existed as of June 30,2010; 2) an $85,000 current liability related to the unrealized loss on ourinterest rate swap, as described in Note 10 of the Notes to the CondensedConsolidated Financial Statements above; 3) a current liability ofapproximately $430,000 related to 2009 accrued property taxes which will bepaid out of cash generated from operations through the end of fiscal 2010; 4) a$185,000 bridge loan that was due July 15, 2010 on which we are continuing to makemonthly payments of interest only; and 5) a $400,000 bridge loan with amaturity date of December 31, 2010. We anticipate both of the bridge loansbeing paid out of the proceeds from a larger recapitalization event. 

We are not in payment defaultunder the Wells Fargo Bank, N.A. note and anticipate remaining current on allprincipal and interest payments in fiscal 2010, subject to our successfullyraising additional operating capital. We have received a Forbearance andReservation of Rights letter from Wells Fargo Bank stating that they areaccepting current principal and interest payments and are not currentlyaccelerating the note, subject to agreeing to an acceptable Required CorrectiveAction for the covenant defaults. It is unlikely that we will have anacceptable Required Corrective Action until our Earnings Before Interest Taxesand Depreciation ("EBITDA") improves. If Wells Fargo were toaccelerate the note payable, we would need additional financing and we do notcurrently have a source for such financing. 

Due to the classification ofthe entire Wells Fargo note payable as a current liability and the right ofWells Fargo to accelerate the required payment of the note, we do not show theability to fully satisfy our liabilities in the normal course of businesswithout raising additional capital. It is our objective to acquire additionaloperating capital through debt and equity offerings and the possible sale ofexisting restaurants with such funds to be used for the repayment of the WellsFargo note and to increase our working capital. We believe we will besuccessful in raising sufficient additional operating capital and inrestructuring our debt obligations; however there can be no assurance that wewill be successful in raising such additional funds particularly if we areunable to reverse our current negative same store sales trends. If we areunable to raise additional operating capital during the remainder of fiscal2010 we may not be able to satisfy our liabilities as they come due.

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In December, 2009 we enteredinto an agreement to extend the maturity of the PFGI II, LLC loan to December31, 2012 and modified the terms of the loan to include a 25 year amortizationperiod with a balloon payment on December 31, 2012. As a result, the majorityof the PFGI II, LLC loan is shown as a long term liability as of June 30, 2010.We are under contract to sell one of the pieces of land we own collateralizingthe PFGI II, LLC loan and anticipate net proceeds of approximately $850,000,which will go toward the reduction of the PFGI II, LLC loan. We will continueto market the other land and building we own that collateralizes the PFGI II,LLC loan for a sale and leaseback as conditions in the sale leaseback marketimprove and plan to use the net proceeds to reduce the loan.

*Financing Activities*

Wells Fargo Note Payable

In May 2007 we borrowed$1,100,000 from Wells Fargo Bank under a note payable with an eight year termwith a floating interest rate at .50% below prime. We simultaneously enteredinto an interest rate swap transaction with Wells Fargo Bank for the full$1,100,000 with a fixed interest rate of 7.77% for the full eight year termcoinciding with the note payable (see note 5 above). As discussed above we arein default of certain loan covenants as of June 30, 2010 on this Wells Fargonote, however we are not currently, and have never been, in payment defaultunder the note.

PFGI II LLC Promissory Note

In July 2008, we entered intoa $2,500,000 promissory note with an unrelated third party (PFGI II, LLC) andamended that note on April 20, 2009 extending the maturity to July 10, 2010 andagain on December 14, 2009 extending the maturity to December 31, 2012. Thepromissory note originally constituted a revolving line-of-credit for thedevelopment of new restaurants which was advanced and repaid on a monthly basisfrom time to time. The promissory note now constitutes a term loan with monthlypayments of principal and interest. The loan is secured by separate leaseholddeeds of trust and security agreements related to six company-owned restaurantsand first deeds of trust on two real properties funded by the line of credit.The total outstanding balance on the promissory note was $2,488,000 at June 30,2010. Of the $2,488,000 outstanding balance, approximately $1,595,000 isrelated to the construction of one company-owned restaurant in Firestone,Colorado that opened in October 2008. The fully developed restaurant iscurrently being held for sale in the sale-leaseback market. The remainingbalance is related to the purchase, entitlement and other development fees on aparcel of land in Aurora, Colorado that will be sold as described above.

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In connection with the PFGIII, LLC amendment in December, 2009, the Company issued a three-year warrantdated January 2, 2010 (the "Warrant") to PFGI II, LLC which providesthat PFGI II, LLC may at any time from January 2, 2010 until January 2, 2013purchase up to 112,613 shares of the Company's common stock (the "WarrantShares") at an exercise price of $1.11 per share. The number of WarrantShares and the exercise price are subject to customary anti-dilutionadjustments upon the occurrence of any stock dividends, stock splits, reversestock splits, recapitalizations, reclassifications, stock combinations orsimilar events. The fair value of the Warrant was derived through theapplication of the Black-Scholes option pricing model. The fair value of theWarrant issued was determined to be $82,000 using the following assumptions: 1)risk free interest rate of 1.7%, 2) an expected life of 3 years, and 3) anexpected dividend yield of zero. The fair value of $82,000 was charged to thenote discount and credited to Additional Paid in Capital. The note discountwill be amortized over thirty-six months and charged to interest expense.Amortization of the debt discount included in interest expense for the threeand nine months ended June 30, 2010 was $7,000 and $13,000, respectively.

Golden Bridge Loan Agreement

On April 20, 2009 as reportedon form 8-K, Good Times Restaurants Inc. (the "Company") and GoodTimes Drive Thru Inc. ("GTDT"), a wholly owned subsidiary of theCompany, entered into a loan agreement with Golden Bridge, LLC ("GoldenBridge"), pursuant to which Golden Bridge made a loan of $185,000 (the"Golden Bridge Loan") to GTDT to be used for restaurant marketing andother working capital costs. Eric Reinhard, Ron Goodson, David Grissen, RichardStark, and Alan Teran, who are all members of the Company's Board of Directorsand stockholders of the Company, are the sole members of Golden Bridge. EricReinhard is the sole manager of Golden Bridge. The Company's and GTDT'sobtaining of the Golden Bridge Loan and related transactions with Golden Bridgewere duly approved in advance by the Company's Board of Directors by the affirmativevote of members thereof who did not have an interest in the transaction.

The Golden Bridge Loan isevidenced by a promissory note dated April 20, 2009 (the "Golden BridgeNote") made by the Company and GTDT, as co-makers, and bears interest at arate of 10% per annum on the unpaid principal balance. The Golden Bridge Noteprovides for monthly interest payments and was due and payable in full on July10, 2010. We have a letter agreement with Golden Bridge to continue withinterest only payments until we complete a larger recapitalization event orthrough December 31, 2010. The commitment fee for the Golden Bridge Loan was$3,700. The Golden Bridge Loan Agreement contains customary event of defaultprovisions and a cross-default provision with respect to the loan agreement forthe PFGI II, LLC loan (as described above).

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The Golden Bridge LoanAgreement and Note are subject to the terms of an Intercreditor Agreement datedApril 20, 2009 (the "Intercreditor Agreement"), among the Company,GTDT, Golden Bridge and PFGI II, LLC ("PFGI"). Under theIntercreditor Agreement, PFGI and Golden Bridge agreed that, upon any paymentsof principal or interest on the Golden Bridge Loan or the PFGI Loan by GTDT,PFGI and Golden Bridge shall each be entitled to its pro rata share of suchpayments in the amount of 93.1% for PFGI and 6.9% for Golden Bridge. TheIntercreditor Agreement also provides that GTDT and the Company may prepay theGolden Bridge Loan in whole or in part with the prior consent of PFGI, and thatany other indebtedness of the Company or GTDT to PFGI or Golden Bridge shall besubordinate in payment and lien priority to the Golden Bridge Loan and the PFGILoan to the extent of the proceeds of the collateral. Under the IntercreditorAgreement, all money received from any foreclosure on the collateral securingthe PFGI Loan shall be applied to PFGI and Golden Bridge for their expensesrelated to such event and then on a pari passu basis to PFGI and Golden Bridgein accordance with their respective pro rata shares.

Prior to the closing of theGolden Bridge Loan, borrowings under the PFGI Loan were secured by GTDT'sleasehold estates and business assets with respect to certain of GTDT'srestaurants located in Boulder, Adams, Jefferson and Larimer counties inColorado and first deeds of trust on real property in Arapahoe and Weldcounties in Colorado developed under the PFGI Loan.

In connection with the GoldenBridge Loan, the Company issued a three-year warrant dated April 20, 2009 (the"Warrant") to Golden Bridge which provides that Golden Bridge may atany time from April 20, 2009 until April 20, 2012 purchase up to 92,500 sharesof the Company's common stock (the "Warrant Shares") at an exerciseprice of $1.15 per share. The number of Warrant Shares and the exercise priceare subject to customary anti-dilution adjustments upon the occurrence of anystock dividends, stock splits, reverse stock splits, recapitalizations,reclassifications, stock combinations or similar events. The fair value of theWarrant was derived through the application of the Black-Scholes option pricingmodel. The fair value of the Warrant issued was determined to be $42,000 withthe following assumptions: 1) risk free interest rate of 1.27%, 2) an expectedlife of 3 years, and 3) an expected dividend yield of zero. The fair value of$42,000 was charged to the note discount and credited to Additional Paid inCapital. The note discount will be amortized over fourteen months and chargedto interest expense. Amortization of the debt discount included in interestexpense for the three and nine months ended June 30, 2010 was $8,000 and$25,000, respectively.

W. Capital and John T.MacDonald Loan Agreement

On February 2, 2010, asreported on form 8-K, the Company entered into a loan agreement with W Capital,John T. MacDonald and Golden Bridge, LLC (collectively "the Lender"),pursuant to which the Lender made a loan of $200,000, with up to an additional$200,000 loan available through April 30, 2010 to be used for restaurantmarketing and other working capital uses. At June 30, 2010 the entire $400,000had been advanced to the Company. The loan agreement was amended on April 1,2010, as reported on form 8-K. (See "Note 2 - Recent Developments"above)

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The Loan is evidenced by aConvertible Secured Promissory Note dated February 1, 2010 (the"Note") made by the Company and shall bear interest at a rate of 12%per annum on the unpaid principal balance through August 1, 2010. The maturitydate for payment of all principal and interest on the Note is December 31,2010. However, if and to the extent that any portion of the Note is stilloutstanding after August 1, 2010, the interest rate will increase to 14% perannum from and after August 1, 2010 until the maturity date. All interestaccrues through the maturity date. The Loan Agreement contains customary eventof default provisions and a cross-default provision with respect to the loanagreement for the Wells Fargo Bank and PFGI II, LLC loans in the event ofpayment default on either of those loans. Upon the occurrence and continuanceof an event of default, the Lender may declare all or part of the unpaidprincipal and accrued and unpaid interest on the Loan due and payable. Anyamounts not paid to the Lender when due will bear interest from the due dateuntil paid at a rate of 16% per annum. The repayment of the 2009 Golden BridgeLoan and the February 2, 2010 Loan will require additional equity or debtcapital. As described above in Note 2 - Recent Developments, the Company hashired Mastodon Ventures to seek strategic alternatives and sources of capital.There can be no assurance that we will be successful in raising such capitalwhich would require us to renegotiate the repayment terms of these short termloans.

The Loan Agreement and theNote are subject to the terms of a Leasehold Deed of Trust Agreement andSecurity Agreement with respect to certain of GTDT's restaurants that were notpreviously pledged as collateral under the Wells Fargo Bank or PFGI II, LLCborrowings. The Note is convertible into shares of common stock of the Company(the "Conversion Shares") at any time prior to repayment at aconversion price of 25% less than the average price of the Company's commonstock during the 20 days prior to the conversion date, provided however that theconversion price shall not be below $.75 per share nor above $1.08 per share(the "Conversion Price").

In accordance with FASB ASC470-20, Debt with Conversion and Other Options, the intrinsic value of theembedded beneficial conversion feature was determined to be $161,000. The valueof $161,000 was charged to note discounts and credited to Additional Paid inCapital. The value will be amortized over six months and charged to interestexpense. Amortization of the beneficial conversion feature included in interestexpense for the three and nine months ended June 30, 2010 was $80,000 and$134,000, respectively.

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In connection with the Loan,the Company issued warrants dated February 1, 2010 (the "Warrants")to the Lender which provides that the Lender may at any time from February 1,2010 until two years from the date of repayment or conversion of the Loanpurchase up to an aggregate of 50,000 shares of the Company's common stock (the"Warrant Shares") at an exercise price that is equal to theConversion Price calculation above. If the Loan is not repaid prior to August1, 2010, the Company will issue warrants for the purchase of 50,000 additionalshares of the Company's common stock upon the same terms as the initialWarrants. The number of Warrant Shares and the exercise price are subject tocustomary anti-dilution adjustments upon the occurrence of any stock dividends,stock splits, reverse stock splits, recapitalizations, reclassifications, stockcombinations or similar events. The fair value of the Warrants was derivedthrough the application of the Black-Scholes option pricing model. The fairvalue of the Warrants issued was determined to be $38,000 with the followingassumptions: 1) risk free interest rate of 1.41%, 2) an expected life of 2.5years, and 3) an expected dividend yield of zero. The fair value of $38,000 wascharged to the note discount and credited to Additional Paid in Capital. Thenote discount will be amortized over six months and charged to interestexpense. Amortization of the debt discount included in interest expense for thethree and nine months ended June 30, 2010 was $19,000 and $32,000,respectively.

Additional commitments forthe development of new restaurants in fiscal 2010 and beyond will depend on theCompany's sales trends, cash generated from operations and our access tocapital including in the sale-leaseback markets.

*Capital Expenditures*

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

*Cash Flows*

Net cash used in operatingactivities was $708,000 for the nine months ended June 30, 2010. The net cashused in operating activities for the nine months ended June 30, 2010 was theresult of a net loss of ($2,582,000) as well as cash and non-cash reconcilingitems totaling $1,874,000 (comprised of depreciation and amortization of$921,000, stock based compensation expense of $66,000, non-cash discontinuedoperations costs of $453,000 an accounts payable increase of $346,000 and a netdecrease in other operating assets and liabilities of $88,000).

Net cash used in operatingactivities was $821,000 for the nine months ended June 30, 2009. The net cashused in operating activities for the nine months ended June 30, 2009 was theresult of a net loss of ($1,488,000) as well as cash and non-cash reconcilingitems totaling $667,000 (comprised of depreciation and amortization of$944,000, an unrealized loss of $87,000 related to our interest rate swapliability, an accounts payable decrease of $263,000 and a net increase in otheroperating assets and liabilities of $101,000).

Net cash provided byinvesting activities for the nine months ended June 30, 2010 was $61,000 whichreflects proceeds from the sale of restaurants of $100,000, payments of $54,000for miscellaneous restaurant related capital expenditures and $15,000 inprincipal payments received on loans to franchisees.

Net cash used in investingactivities for the nine months ended June 30, 2009 was $282,000 which reflectspayments of $277,000 for the purchase of property and equipment (including$217,000 for new store development and $60,000 for miscellaneous restaurant andcorporate office related capital expenditures), $31,000 in loans made tofranchisees and $26,000 in principal payments received on loans to franchisees.

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Net cash provided byfinancing activities for the nine months ended June 30, 2010 was $354,000,which includes principal payments on notes payable and long term debt of$105,000, borrowings on notes payable of $400,000 and receivables fromnon-controlling interests of $59,000.

Net cash provided byfinancing activities for the nine months ended June 30, 2009 was $360,000,which includes principal payments on notes payable and long term debt of$91,000; borrowings on notes payable of $185,000; an advance on our revolvingline of credit of $320,000; and distributions to minority interests inpartnerships of $54,000.

*Contingencies*

We remain contingently liableon various land leases underlying restaurants that were previously sold tofranchisees. We have never experienced any losses related to these contingentlease liabilities, however if a franchisee defaults on the payments under theleases, we would be liable for the lease payments as the assignor or sublessorof the lease. Currently we have not been notified nor are we aware of anyleases in default under which we are contingently liable, however there can beno assurance that there will not be in the future, which could have a materialeffect on our future operating results.

**Impact of Inflation**

During fiscal 2009 weexperienced a moderation in our food and packaging costs when our weighted foodand packaging costs increased approximately 2%. During fiscal 2010 we haveexperienced an increase in our weighted average food and packaging costs of6.2%, including significant increases in beef, bacon and soda syrup. Weanticipate continued upward pressure on our commodity costs for the balance offiscal 2010. State increases in the minimum wage resulted in a cumulativeincrease in our average hourly wage of $.90 per employee hour from fiscal 2007through fiscal 2009. We took moderate price increases during fiscal 2009 andplan for additional moderate price increases in fiscal 2010, which may or maynot be sufficient to recover increased commodity costs or increases in other operatingexpenses.

**Seasonality**

Revenues of the Company aresubject to seasonal fluctuation based primarily on weather conditions adverselyaffecting restaurant sales in December, January, February and March.

**ITEM 3.          QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

            Notrequired.

**ITEM 4T.       CONTROLSAND PROCEDURES**

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**Conclusion Regarding theEffectiveness of Disclosure Controls and Procedures**

Based on an evaluation of theCompany's disclosure controls and procedures (as defined in Rules 13a-15(e)and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of theend of the period covered by this report on form 10Q, the Company's ChiefExecutive Officer and Controller (its principal executive officer and principalfinancial officer, respectively) have concluded that the Company's disclosurecontrols and procedures were effective.

**Changes in InternalControl over Financial Reporting**

There have been nosignificant changes in the Company's internal control over financial reportingthat occurred during the Company's fiscal quarter ended June 30, 2010 thathave materially affected, or are reasonably likely to materially affect, theCompany's internal control over financial reporting.

**PARTII - OTHER INFORMATION**

**ITEM1.          LEGAL PROCEEDINGS**

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

**ITEM 1A. RISK FACTORS**

Notrequired.

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

None.

**ITEM3.          DEFAULTS UPON SENIOR SECURITIES**

We are in default of certaintechnical loan covenants as of June 30, 2010 on our $755,000 note payableto Wells Fargo Bank, N.A. ("the Bank"). We have never been in paymentdefault on the note. On February 9, 2009 we received a Reservation of Rightsletter from the Bank formally notifying us of the default of the EarningsBefore Interest Taxes and Depreciation ("EBITDA") Coverage Ratio ofnot less than 1.5 to 1.0 and the Tangible Net Worth of not less than $5,000,000as set forth in the Credit Agreement for the period ending December 31, 2008.The letter serves as notice that notwithstanding the foregoing events ofdefault, the Bank is reserving all of its rights and remedies under the CreditAgreement and related agreements. The Bank is not now accelerating the Loan andis willing to continue to accept regularly scheduled payments of principal andinterest under the Loan.

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**ITEM 4.          SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

None.

**ITEM5.          OTHER INFORMATION**

None.

** **

**ITEM6.          EXHIBITS**

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

            Exhibit No.    Description

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

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

*32.1   Certificationof Chief Executive Officer and Controller pursuant to 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.

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

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

Controller                           |

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