| ** **

** **

**UNITED STATES**                                              |
|----------------------------------------------------------------------------------------|
| **SECURITIES AND EXCHANGE COMMISSION**                                                 |
| **WASHINGTON, D.C. 20549**                                                             |
| ** **                                                                             |
| **FORM 10-Q**                                                                          |
|                                                                                        |
| (Mark One)                                                                             |
|                                                                                        |
| [x]  QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE |
| ACT OF 1934                                                                            |
|                                                                                        |
| For the quarterly period ended December  31, 2010                                      |
|                                                                                        |
| OR                                                                                     |
|                                                                                        |
| [  ]  TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES   |
| EXCHANGE ACT OF 1934                                                                   |
| Commission File Number: 0-18590                                                        |
|                                                                                        |
| **GOOD TIMES RESTAURANTS, INC**.                                                       |
| (Exact Name of Registrant as Specified  in Its Charter)                                |
| NEVADA                                                          |  | 84-1133368                              |
|-----------------------------------------------------------------|--|-----------------------------------------|
| (State or Other Jurisdiction of

Incorporation or Organization) |  | (I.R.S. Employer Identification Number) |
| 601 CORPORATE CIRCLE, GOLDEN, CO 80401                        |
|---------------------------------------------------------------|
| (Address of Principal Executive Offices,  Including Zip Code) |
| (303) 384-1400                                                |
| (Registrant's Telephone Number,  Including Area Code)         |
|                                                               |
| Indicate by  check mark whether the registrant: (1) has filed all reports required to be  filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during  the preceding 12 months (or for such shorter period that the registrant was  required to file such reports), and (2) has been subject to such filing  requirements for the past 90 days. | Yes [x] | No [  ] |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|--------------|
| Indicate by  check mark whether the registrant is a large accelerated filer, an  accelerated filer, a non-accelerated filer or a smaller reporting company, as  defined in Rule 12b-2 of the Exchange Act |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Large accelerated filer  [  ]                 |  | Accelerated  filer                         [  ] |
|---------------------------------------------------------|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Non-accelerated filer     [  ] |  | Smaller  reporting company     [x]                                                                                                                       |
| Indicate by  check mark whether the registrant is a shell company (as defined in Rule  12b-2 of the Exchange Act). | Yes [  ] | No [x] |
|--------------------------------------------------------------------------------------------------------------------|---------------|--------|
| As of February  14, 2011, there were 2,726,214 shares of the Registrant's common stock, par  value $0.001 per share, issued and outstanding. |
|----------------------------------------------------------------------------------------------------------------------------------------------|

 

 

----

**Form 10-Q**

**Quarter Ended December 31,2010**
| ** ** | **INDEX**                                                                                                           | **PAGE** |
|------------|---------------------------------------------------------------------------------------------------------------------|----------|
|            |                                                                                                                     |          |
|            | **PART I - FINANCIAL INFORMATION**                                                                                  |          |
|            |                                                                                                                     |          |
| Item 1.    | Financial  Statements                                                                                               |          |
|            |                                                                                                                     |          |
|            | Condensed  Consolidated Balance Sheets (unaudited) - December  31, 2010  and September 30, 2010                | 3 - 4    |
|            |                                                                                                                     |          |
|            | Condensed Consolidated Statements of Operations  (unaudited) For the three months ended December 31,  2010 and 2009 | 5        |
|            |                                                                                                                     |          |
|            | Condensed Consolidated Statements of Cash Flow  (unaudited) For the three months ended December 31,  2010 and 2009  | 6        |
|            |                                                                                                                     |          |
|            | Notes to Condensed  Consolidated Financial Statements                                                               | 7 - 12   |
|            |                                                                                                                     |          |
| Item 2.    | Management's Discussion and  Analysis of Financial Condition and Results of Operations                              | 13 - 19  |
|            |                                                                                                                     |          |
| Item 3.    | Quantitative and Qualitative  Disclosures About Market Risk                                                         | 20       |
|            |                                                                                                                     |          |
| Item  4T.  | Controls and Procedures                                                                                             | 20       |
|            |                                                                                                                     |          |
|            | **PART II - OTHER INFORMATION**                                                                                     |          |
|            |                                                                                                                     |          |
| Item 1.    | Legal Proceedings                                                                                                   | 20       |
|            |                                                                                                                     |          |
| Item  1A.  | Risk Factors                                                                                                        | 20       |
|            |                                                                                                                     |          |
| Item 2.    | Unregistered Sales of  Equity Securities and Use of Proceeds                                                        | 20       |
|            |                                                                                                                     |          |
| Item 3.    | Defaults Upon Senior  Securities                                                                                    | 20       |
|            |                                                                                                                     |          |
| Item 4.    | Submission of Matters to a  Vote of Security Holders                                                                | 20       |
|            |                                                                                                                     |          |
| Item 5.    | Other Information.                                                                                                  | 20       |
|            |                                                                                                                     |          |
| Item 6.    | Exhibits                                                                                                            | 20       |
|            |                                                                                                                     |          |
|            | **SIGNATURES**                                                                                                      | 21       |
|            | ** **                                                                                                          |          |
|            | **CERTIFICATIONS**                                                                                                  |          |
|            | ** **                                                                                                          |          |
|            | ** **                                                                                                          |          |

2

----

**PART I. - FINANCIAL INFORMATION**

** **

**ITEM 1.                FINANCIALSTATEMENTS**

** **

**GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

** **

**ASSETS**
|                                                                                                       | **December 31,**                                                               |                                    | **September 30,**                                                              |
|-------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------|------------------------------------|--------------------------------------------------------------------------------|
|                                                                                                       | **2010**                                                                       |                                    | **2010**                                                                       |
| CURRENT ASSETS:                                                                                       |                                                                                |                                    |                                                                                |
|         Cash and cash  equivalents                                 |  $                                                                        | 1,251,000                     |                                                                                |  $ | 429,000  |
|         Receivables, net of  allowance for doubtful accounts of $0 | 95,000                                                                    |                                    | 157,000                                                                   |
|         Prepaid expenses  and other                                | 54,000                                                                    |                                    | 38,000                                                                    |
|         Inventories                                                | 205,000                                                                   |                                    | 201,000                                                                   |
|         Notes receivable                                           |             3,000  |                                    |             9,000  |
|         Total current  assets                                      | 1,608,000                                                                 |                                    | 834,000                                                                   |
|                                                                                                       |                                                                                |                                    |                                                                                |
| PROPERTY AND EQUIPMENT, at  cost:                                                                     |                                                                                |                                    |                                                                                |
|         Land and building                                          | 5,655,000                                                                 |                                    | 5,653,000                                                                 |
|         Leasehold  improvements                                    | 3,821,000                                                                 |                                    | 3,821,000                                                                 |
|         Fixtures and  equipment                                    |     8,233,000                                              |                                    |     8,229,000                                              |
|                                                                                                       | 17,709,000                                                                |                                    | 17,703,000                                                                |
|                                                                                                       |                                                                                |                                    |                                                                                |
|         Less accumulated  depreciation and amortization            | (13,028,000)                                                                   |                                    | (12,828,000)                                                                   |
|                                                                                                       | 4,681,000                                                                 |                                    | 4,875,000                                                                 |
|                                                                                                       |                                                                                |                                    |                                                                                |
|         Assets held for  sale                                      | 1,595,000                                                                 |                                    | 2,445,000                                                                 |
|                                                                                                       |                                                                                |                                    |                                                                                |
| OTHER ASSETS:                                                                                         |                                                                                |                                    |                                                                                |
|         Notes receivable, net  of current portion                  | 16,000                                                                    |                                    | 10,000                                                                    |
|         Deposits and other  assets                                 |         72,000                         |                                    |         154,000                        |
|                                                                                                       | 88,000                                                                    |                                    | 164,000                                                                   |
|                                                                                                       |                                                                                |                                    |                                                                                |
| TOTAL ASSETS                                                                                          |  $                                                                        |     7,972,000  |                                                                                |  $ |      8,318,000  |

**LIABILITIES AND STOCKHOLDERS' EQUITY**
|  CURRENT LIABILITIES:                                                                                                                                                                                 |                                  |               |                                  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|---------------|----------------------------------|
|         Current maturities of long-term debt, net of  discounts of

            $26,000 and $27,000 respectively |  $                          | 131,000  |                                  |  $ | 702,000  |
|         Accounts payable                                                                                                                                                | 452,000                     |               | 716,000                     |
|         Deferred income                                                                                                                                                 | 61,000                      |               | 89,000                      |
|         Liabilities related to discontinued  operations                                                                                                                 | 20,000                      |               | 20,000                      |
|         Other accrued liabilities                                                                                                                                       | 1,172,000                   |          | 1,176,000                   |
|         Total current liabilities                                                                                                                                       | 1,836,000                   |               | 2,703,000                   |
| LONG-TERM LIABILITIES:                                                                                                                                                                                     |                                  |               |                                  |
|         Debt, net of current portion and net of  discounts of $26,000 and $33,000, respectively                                                                         | 2,167,000                   |               | 3,005,000                   |
|         Liabilities related to discontinued  operations                                                                                                                 | 118,000                     |               | 123,000                     |
|         Deferred liabilities                                                                                                                                            |     785,000  |          |     793,000  |
|         Total long-term liabilities                                                                                                                                     | 3,070,000                   |               | 3,921,000                   |
|                                                                                                                                                                                                            |                                  |               |                                  |  |  |

 

3

See accompanying notes tocondensed consolidated financial statements

----

**GOOD TIMES RESTAURANTS INC.AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)**

**(Unaudited)**
|                                                                                              | **December 31,**                             |                                    | **September 30,** |
|----------------------------------------------------------------------------------------------|----------------------------------------------|------------------------------------|-------------------|
|                                                                                              | **2010**                                     |                                    | **2010**          |
| STOCKHOLDERS' EQUITY:                                                                        |                                         |                                    |                   |
| Non-controlling interest                                                                     | 199,000                                 |                                    | 274,000      |
| Preferred stock, $.01 par  value;                                                            |                                         |                                    |                   |
|       5,000,000 shares  authorized, none issued and outstanding     |                                         |                                    |                   |
|       as of December 31,  2010 and September 30, 2010               |        -  |                                    | -            |
|                                                                                              |                                         |                                    |                   |
| Common stock, $.001 par  value; 50,000,000 shares authorized                                 |                                         |                                    |                   |
|       2,725,996 and 1,299,520  shares issued and outstanding        |                                         |                                    |                   |
|       as of December 31, 2010 and September 30, 2010,  respectively | 8,000                                   |                                    | 4,000        |
|                                                                                              |                                         |                                    |                   |
| Capital contributed in  excess of par value                                                  | 19,931,000                              |                                    | 18,153,000   |
| Accumulated deficit                                                                          | (17,072,000)                                 |                                    | (16,737,000)      |
|         Total stockholders'  equity                       | 3,066,000                               |                                    | 1,694,000    |
|                                                                                              |                                         |                                    |                   |
| TOTAL LIABILITIES AND  STOCKHOLDERS' EQUITY                                                  |  $                                      |     7,972,000  |                   |  $ |     8,318,000  |
|                                                                                              |                                              |                                    |                   |  |  |

4

See accompanying notes to condensed consolidatedfinancial statements

----

**GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**
|                                                                                                                               | **Three Months Ended**                 |
|-------------------------------------------------------------------------------------------------------------------------------|----------------------------------------|
|                                                                                                                               | **December 31,**                       |
|                                                                                                                               | **2010**                               |  | **2009** |
| NET REVENUES:                                                                                                                 |                                        |  |  |
|         Restaurant sales,  net                                                             |  $                                | 4,982,000  |  |  $ | 4,638,000  |
|         Franchise revenues                                                                 |     103,000        |  |      113,000  |
|                 Total  revenues                    | 5,085,000                         |  | 4,751,000  |
|                                                                                                                               |                                        |  |  |
| RESTAURANT OPERATING COSTS:                                                                                                   |                                        |  |  |
|         Food and packaging  costs                                                          | 1,758,000                         |  | 1,535,000  |
|         Payroll and other  employee benefit costs                                          | 1,759,000                         |  | 1,739,000  |
|         Occupancy and other  operating costs                                               | 1,083,000                         |  | 1,123,000  |
|         Depreciation and  amortization                                                     |     204,000        |  |      232,000  |
|                 Total  restaurant operating costs  | 4,804,000                         |  | 4,629,000  |
|                                                                                                                               |                                        |  |  |
|         General and  administrative costs                                                  | 344,000                           |  | 370,000  |
|         Advertising costs                                                                  | 217,000                           |  | 270,000  |
|         Franchise costs                                                                    | 17,000                            |  | 30,000  |
|         Gain on sale of  restaurant buildings and equipment                                | (  12,000)                        |  | (    7,000) |
| LOSS FROM OPERATIONS                                                                                                          | (285,000)                              |  | (541,000) |
|                                                                                                                               |                                        |  |  |
| OTHER INCOME AND  (EXPENSES):                                                                                                 |                                        |  |  |
|         Unrealized income on  interest rate swap                                           | 13,000                            |  | 10,000  |
|         Interest expense,  net                                                             | (  112,000)                       |  | (80,000) |
|                 Total other  income and (expenses) | (    99,000)            |  |      (70,000) |
|                                                                                                                               |                                        |  |  |
| LOSS FROM CONTINUING  OPERATIONS                                                                                              | ($384,000)                             |  | ($611,000) |
|                                                                                                                               |                                        |  |  |
|         Loss from  discontinued operations                                                 | (      4,000) |  | (   71,000) |
|                                                                                                                               |                                        |  |  |
| NET LOSS                                                                                                                      | ($388,000)                             |  | ($682,000) |
|         Income (expense)  from non-controlling interest                                    | (    17,000)            |  |       48,000  |
| NET LOSS APPLICABLE TO  COMMON SHAREHOLDERS                                                                                   | ($405,000)                             |  | ($634,000) |
|                                                                                                                               |                                        |  |  |
| Net loss per share - basic  and diluted                                                                                       |                                        |  |  |
| Continuing operations                                                                                                         | ($.24)                                 |  | ($.47) |
| Discontinued operations                                                                                                       | ($.00)                                 |  | ($.05) |
| Net loss applicable to  common shareholders                                                                                   | ($.25)                                 |  | ($.49) |
|                                                                                                                               |                                        |  |  |
| WEIGHTED AVERAGE COMMON  SHARES AND EQUIVALENTS USED IN PER SHARE CALCULATION:

BASIC AND DILUTED                             | 1,594,102                         |  | 1,299,520  |
|                                                                                                                               |                                        |  |  |  |  |

5

----

**GOOD TIMES RESTAURANTS INC.AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

** **
|                                                                                                                                                                                                           | **Three Months Ended**                                                                 |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------|
|                                                                                                                                                                                                           | **December 31,**                                                                       |
|                                                                                                                                                                                                           | **2010**                                                                               |   | **2009** |
| CASH FLOWS FROM OPERATING  ACTIVITIES:                                                                                                                                                                    |                                                                                        |  |  |
|         Net loss                                                                                                                                                       | ($388,000)                                                                             |  | ($682,000) |
|         Loss from  discontinued operations                                                                                                                             |     (4,000)                                                             |  |     (71,000) |
|         Net loss from  continuing operations                                                                                                                           | (384,000)                                                                              |  | (611,000) |
|                                                                                                                                                                                                           |                                                                                        |  |  |
|       Adjustments to  reconcile net loss to net cash used in operating activities:                                                                                               |                                                                                        |  |  |
|             Depreciation  and amortization                                                                                                         | 204,000                                                                           |  | 232,000  |
|             Amortization of  debt issuance costs                                                                                                   | 28,000                                                                            |  | 8,000  |
|             Stock based  compensation expense                                                                                                      | 15,000                                                                            |  | 22,000  |
|             Unrealized gain  on interest rate swap                                                                                                 | (13,000)                                                                               |  | (10,000) |
|             Accretion of  deferred rent                                                                                                            | -                                                                                      |  | -  |
|             Recognition of  gain on sale of restaurant building                                                                                    | (8,000)                                                                                |  | (7,000) |
|             Loss (gain) on  disposal of property, and equipment                                                                                    | (4,000)                                                                                |  | -  |
|             Changes in  operating assets and liabilities:                                                                                          |                                                                                        |  |  |
|                   (Increase)  decrease in:                                                                           |                                                                                        |  |  |
|                         Receivables  and other                                         | 64,000                                                                            |  | (39,000) |
|                         Inventories                                                    | (4,000)                                                                                |  | 18,000  |
|                         Deposits  and other                                            | 62,000                                                                            |  | (28,000) |
|                   (Decrease)  increase in:                                                                           |                                                                                        |  |  |
|                         Accounts  payable                                              | (264,000)                                                                              |  | 103,000  |
|                         Accrued  liabilities and deferred income                       |     19,000                                                         |  |     14,000  |
|                   Net cash  used in operating activities from continuing operations                                  | (285,000)                                                                              |  | (298,000) |
|                   Net cash  used in operating activities from discontinued operations                                |     (9,000)                                                             |  | (  51,000) |
|                             Net  cash used in operating activities | (294,000)                                                                              |  | (349,000) |
|                                                                                                                                                                                                           |                                                                                        |  |  |
| CASH FLOWS USED IN  INVESTING ACTIVITIES                                                                                                                                                                  |                                                                                        |  |  |
|       Proceeds from the  sale of fixed assets                                                                                                                                    | 854,000                                                                           |  | -  |
|       Payments for the  purchase of property and equipment                                                                                                                       | (6,000)                                                                                |  | (19,000) |
|       Payments received on  loans to franchisees and to others                                                                                                                   |               -  |  |     5,000  |
|                     Net  cash provided by (used in) investing activities                                   | 848,000                                                                           |  | (14,000) |
|                                                                                                                                                                                                           |                                                                                        |  |  |
| CASH FLOWS FROM FINANCING  ACTIVITIES:                                                                                                                                                                    |                                                                                        |  |  |
|       Proceeds from common  stock sale                                                                                                                                           | 1,727,000                                                                         |  | -  |
|       Principal payments on  notes payable and long-term debt                                                                                                                    | (1,437,000)                                                                            |  | (31,000) |
|       Borrowings on notes  payable and long-term debt                                                                                                                            | -                                                                                      |  | - |
|       Distributions,  net of contributions paid to non-controlling interests                                                                                                     | (    22,000)                                                            |  |     29,000  |
|                     Net  cash provided by (used in) financing activities                                   |     268,000                                                        |  | (    2,000) |
|                                                                                                                                                                                                           |                                                                                        |  |  |
| NET CHANGE IN CASH AND CASH  EQUIVALENTS                                                                                                                                                                  | 822,000                                                                           |  | (365,000) |
|                                                                                                                                                                                                           |                                                                                        |  |  |
| CASH AND CASH EQUIVALENTS,  beginning of period                                                                                                                                                           |  $                                                                                |     429,000  |  |  $ | 815,000  |
|                                                                                                                                                                                                           |                                                                                        |  |  |
| CASH AND CASH EQUIVALENTS,  end of period                                                                                                                                                                 |  $                                                                                | 1,251,000  |  |  $ | 450,000  |
|                                                                                                                                                                                                           |                                                                                        |  |  |
| SUPPLEMENTAL DISCLOSURES OF  CASH FLOW INFORMATION:                                                                                                                                                       |                                                                                        |  |  |
|       Cash paid for  interest                                                                                                                                                    |  $                                                                                |     86,000  |  |  $ |     72,000  |

6

----

**GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 1.           Basisof Presentation**

** **

In the opinion of management, the accompanyingunaudited condensed consolidated financial statements contain all of the normalrecurring adjustments necessary to present fairly the financial position of theCompany as of December 31, 2010, the results of its operations and its cashflows for the three month period ended December 31, 2010. Operating results forthe three month period ended December 31, 2010 are not necessarily indicativeof the results that may be expected for the year ending September 30, 2011. Thecondensed consolidated balance sheet as of September 30, 2010 is derived fromthe audited financial statements, but does not include all disclosures requiredby generally accepted accounting principles.  As a result, these financialstatements should be read in conjunction with the Company's Form 10-K for thefiscal year ended September 30, 2010.

**Note 2.           RecentDevelopments**

** **

OnDecember 31, 2010, following approval by the Company's stockholders at aspecial meeting on December 31, 2010, the Company effected a one-for-threereverse stock split of its issued and outstanding Common Stock. All referencesto numbers of shares and share prices in the following paragraphs andthroughout Items 1 and 2 are stated at post-reverse split amounts.

Aspreviously disclosed in the Company's current report on Form 8-K filed onNovember 3, 2010, the Company entered into a Securities Purchase Agreement (the"Purchase Agreement"), dated October 29, 2010, with Small Island InvestmentsLimited, a Bermuda corporation ("SII"), under which the Company agreed to sell,and SII agreed to purchase, 1,400,000 shares (the "Shares") of the Company'scommon stock, par value $0.001 per share (the "Common Stock"), at a purchaseprice of $1.50 per share, or an aggregate of $2,100,000 (the "SII InvestmentTransaction").  The Purchase Agreement was amended on December 13, 2010 toclarify the scope of SII's director designation rights following the Closing.

OnDecember 13, 2010, following approval of the SII Investment Transaction andrelated matters by the Company's stockholders at a special meeting called forsuch purposes (the "Special Meeting"), the Company and SII completed theissuance and sale of the Shares to SII.  On December 13, 2010, the Company andSII also entered into a Registration Rights Agreement, pursuant to which theCompany granted SII certain registration rights with respect to resale of theShares.

Thecompletion of the SII Investment Transaction resulted in a change of control ofthe Company, with SII becoming the beneficial owner of approximately 51.4percent of the Company's outstanding Common Stock.  In addition, pursuant tothe Purchase Agreement, SII designated four new members of the Company's Boardof Directors to replace Richard J. Stark, Alan A. Teran, Ron Goodson and DavidGrissen, all of whom resigned as directors effective upon the closing of theSII Investment Transaction.

Atthe Special Meeting, the Company's stockholders also approved a proposal togive our Board discretion to effect a one-for-three reverse stock split of theCompany's issued and outstanding Common Stock following the closing of the SII InvestmentTransaction.  The Board subsequently adopted resolutions approving aone-for-three reverse stock split that was effective as of December 31, 2010.

On February 1, 2010, the Company and GTDT entered intoa loan agreement with W Capital, Inc. ("W Capital"), John T. McDonald ("McDonald")and Golden Bridge, LLC ("Golden Bridge"), pursuant to which the lenders madeloans

totaling $400,000 to be used for restaurant marketingand other working capital uses of GTDT.  The loan agreement was subsequentlyamended as of April 1, 2010 to remove Golden Bridge as a lender, replacing itwith additional loans from W Capital and McDonald.  The aggregate principalamount owing to W Capital and McDonald was paid out of the proceeds of the SIIInvestment Transaction.  In addition, the accrued interest on such loansthrough December 13, 2010 of $39,715 was converted into an aggregate of 26,477shares of our Common Stock.

7

----

In connection with the loans,the Company issued warrants to W Capital and McDonald which entitle them at anytime prior to December 13, 2013 to purchase up to an aggregate of 33,334 sharesof our Common Stock at an exercise price of 25% less than the average price ofour Common Stock during the 20 days prior to exercise, but at not less than $2.25per share nor more than $3.24 per share.  These warrants remain outstanding andexercisable in accordance with their terms.

Proceedsof the SII transaction were also used to repay the outstanding principal amountof $185,000 due to Golden Bridge on a loan Golden Bridge made to the Company in2009, to reduce our accounts payable and accrued liabilities, to pay theexpenses related to the SII Investment Transaction, and to increase our workingcapital.  The SII Investment Transaction also allowed us to renegotiate theterms and covenants of our loan with Wells Fargo Bank, N.A. ("Wells Fargo") andto regain compliance with certain financial loan covenants that had been indefault.  We had never been in any payment default under the loan and WellsFargo agreed to accept additional building and equipment collateral in exchangefor modifying the covenants of the loan without affecting our interest rate orrepayment term.   As a condition to the closing of the SII InvestmentTransaction, we entered into a new Credit Agreement and Promissory Note withWells Fargo effective as of December 13, 2010.  The prior loan covenantdefaults had caused us to show the entire balance of the loan as a short termliability; however, as of December 31, 2010, it is primarily classified as along term note payable under its terms.

SII'saffiliates have ownership interests in other full service restaurant chainsthat generate approximately $75 million in annual revenues.   The SIIInvestment Transaction may position the Company to pursue a larger platform inthe restaurant business through acquisitions, new investment and improvedeconomies of scale.  However, there can be no assurance that any acquisitionsor additional investment will occur.

Theshorter term objective for the Good Times brand will be to focus on maximizingits profitability and development in our core market of Colorado.  In fiscal2010, we closed two Company-operated restaurants and a franchisee closed onerestaurant.  We continue to evaluate the near term realizable asset value ofeach restaurant compared to its longer term cash flow value and we may chooseto sell, sublease or close additional lower performing restaurants in fiscal2011as we position the company for growth in new store development.  We willrequire additional capital sources to develop additional company ownedrestaurants.

**Note 3.           DiscontinuedOperations**

Discontinuedoperations are presented in accordance with FASB ASC 205-20, Presentation ofFinancial Statements. During fiscal 2010 we closed two locations: onedual-branded restaurant in Commerce City, Colorado in March 2010 and oneco-developed restaurant in Denver, Colorado in June 2010. The loss from discontinuedoperations for the three month period ending December 31, 2010 includeson-going lease obligations in excess of the accrued lease liabilities and theloss for the three month period ending December 31, 2009 includes the resultsfrom operations from the two closed locations. Fixed assets of $1,164,000 and$1,164,000 of associated accumulated depreciation related to discontinuedoperations are included in the property and equipment of our condensedconsolidated balance sheet. Current and long-term liabilities related todiscontinued operations relate to the future estimated lease obligations.

Followingis a summary of the costs from discontinued operations for the current andprior year periods:
|                                              | Three Months Ended December 31,                                      |
|----------------------------------------------|----------------------------------------------------------------------|
|                                              | 2010                                                                 | 2009 |
| Results  of operations and lease obligations | $4,000                                                               | $71,000 |
| Future  lease obligations, fair value        | -                                                                    | - |
| Asset  impairment charges and other costs    |             - |             - |
|                                              |                                                                      |  |
| Loss  from discontinued operations           | $4,000                                                               | $71,000 |

Withrespect to the closed locations, we have continuing lease obligations of $763,000.We have subleased the Commerce City location for $600,000. We have terminatedthe lease on the Denver location effective February 1, 2011. We have recordedan estimated discounted liability of $138,000 related to these locations.

** **

**8**

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** **
****
** **

** **

** **

**Note 4.   Stock-BasedCompensation**

* *

Followingthe guidance of FASB ASC 718-10-30, Compensation - Stock Compensation,stock-based compensation is measured at the grant date, based on the calculatedfair value of the award, and is recognized as an expense over the requisiteemployee service period (generally the vesting period of the grant).

TheCompany measures the compensation cost associated with share-based payments byestimating the fair value of stock options as of the grant date using the Black-Scholesoption pricing 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.

Ournet loss for the three months ended December 31, 2010 and December 31, 2009includes $15,000 and $22,000, respectively, of compensation costs related toour stock-based compensation arrangements.

During the three months ended December 31, 2010, wegranted 4,000 non-statutory stock options and 53,233 incentive stock optionsboth with exercise prices of $1.56.  The per share weighted average fair valuewas $1.26 for both the non-statutory stock option grants and incentive stockoption grants.

In addition to the exercise and grant date prices ofthe awards, certain weighted average assumptions that were used to estimate thefair value of stock option grants are listed in the following table:
|                          | **Incentive Stock Options** | **Non-Statutory Stock Options** |
|--------------------------|-----------------------------|---------------------------------|
| Expected  term (years)   | **6.5**                     | 6.7                             |
| Expected  volatility     | **98.54%**                  | 97.35%                          |
| Risk-free  interest rate | **2.46%**                   | 2.52%                           |
| Expected  dividends      | **0**                       | 0                               |

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

FASB ASC 718-10-30 requires the cash flows resultingfrom the tax benefits for tax deductions in excess of the compensation expenserecorded for those options (excess tax benefits) to be classified as financingcash flows. These excess tax benefits were $0 for the three month period ended December31, 2010.

A summary of stock option activity under ourshare-based compensation plan for the three months ended December 31, 2010 ispresented in the following table: (The numbers of options and the exercise pricesshown in this table have been adjusted to effect the one for three reversestock split that occurred on December 31, 2010.)
| ** **                | **Options**   | **Weighted Average Exercise Price** | **Weighted Average**

**Remaining**

**Contractual**

**Life (Yrs.)** | **Aggregate Intrinsic Value** |
|---------------------------|---------------|-------------------------------------|-----------------------------------------------------------------------|-------------------------------|
| Outstanding-beg  of year  | 130,027       | $  9.89                        |                                                                       |                               |
| Granted                   | 57,233        | $  1.56                        |                                                                       |                               |
| Exercised                 | -             |                                     |                                                                       |                               |
| Forfeited                 | (2,038)       | $10.52                              |                                                                       |                               |
| Expired                   | (1,200)       | $  4.14                        |                                                                       |                               |
| Outstanding  Dec 31, 2010 | 184,022       | $  7.33                        | 6.1                                                                   | $27,000                       |
|                           |               |                                     |                                                                       |                               |
| Exercisable  Dec 31, 2010 |   98,152 | $11.44                              | 3.3                                                                   | $   2,000                |

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Asof December 31, 2010, the total remaining unrecognized compensation costrelated to unvested stock-based arrangements was $100,000 and is expected to berecognized over a period of 2.94 years.

There were no stock options exercised during the threemonths ended December 31, 2010.

** **

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

** **

Comprehensive income includes net income or loss,changes in certain assets and liabilities that are reported directly in equitysuch as adjustments resulting from unrealized gains or losses on held-to-maturityinvestments and certain hedging transactions.

In May 2007, the Company entered into an interest rateswap agreement, designated as a cash flow hedge, which hedges the Company'sexposure to interest rate fluctuations on the Company's floating rate$1,100,000 term loan. The contract requires monthly settlements of thedifference between the amounts to be received and paid under the agreement, theamount of which is recognized in current earnings as interest expense. Inaddition we have recognized an unrealized gain of $13,000 for the three monthsended December 31, 2010 in the accompanying Condensed Consolidated Statement ofOperations to adjust the liability related to the interest rate swap to fairmarket value.

**Note 6.           Contingent Liabilities**

** **

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

**Note7.           Assets Held for Sale**

** **

Wehave classified $1,595,000 as assets held for sale in the accompanyingcondensed consolidated balance sheet. These costs are related to a site inFirestone, Colorado which has been fully developed. The proceeds of a saleleaseback transaction, if consummated, are required to be used for thereduction of the line of credit payable to PFGI II, LLC. The effect on ouroperating cash flow is not material as the interest expense on the line ofcredit is approximately equal to the proposed rental rate on a sale leasebacktransaction.

**Note 8.           Impairmentof Long-Lived Assets**

Wereview our long-lived assets for impairment in accordance with the guidance ofFASB ASC 360-10, Property, Plant, and Equipment, including land, property andequipment whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable. Recoverability of assets tobe held and used is measured by a comparison of the capitalized costs of theassets to the future undiscounted net cash flows expected to be generated bythe assets and the expected cash flows are based on recent historical cashflows at the restaurant level (the lowest level that cash flows can bedetermined).

Ananalysis was performed on a restaurant by restaurant basis at December 31, 2010.Assumptions used in preparing expected cash flows were as follows:

•        Sales projections are as follows:Fiscal 2011 sales are projected to increase 3% to 5% over fiscal 2010, forfiscal years 2012 to 2024 we have used annual increases of 2% to 3%. We believethe 2% to 3% increase in the years beyond 2011 is a reasonable expectation ofgrowth and that it would be unreasonable to expect no growth in our sales.These increases include menu price increases in addition to any real growth.Historically our weighted menu prices have increased 1.5% to 6%.

•        Our variable and semi-variablerestaurant operating costs are projected to increase proportionately with thesales increases as well as increasing an additional 1.5% per year consistentwith inflation.

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

•        Food and packaging costs areprojected to remain flat in relation to our recent fiscal 2010 food andpackaging costs as a percentage of sales.

10

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•        Salvage value has been estimatedon a restaurant by restaurant basis considering each restaurant's particularequipment package and building size.

Giventhe results of our impairment analysis at December 31, 2010 there are norestaurants which are impaired as their projected undiscounted cash flows showrecoverability of their asset values.

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

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

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

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

**Note9.           Fair Value Measurements**

TheCompany adopted the provisions of FASB ASC 820, Fair Value Measurements andDisclosures, effective October 1, 2008. FASB ASC 820 defines fair value,establishes a framework for measuring fair value under generally acceptedaccounting principles and enhances disclosures about fair value measurements.

Fairvalue is defined as the price that would be received to sell an asset or paid totransfer a liability in an orderly transaction between market participants atthe measurement date. Valuation techniques used to measure fair value, asrequired by Topic 820 of the FASB ASC, must maximize the use of observableinputs and minimize the use of unobservable inputs.

FASBASC 820 defines three levels of inputs that may be used to measure fair valueand requires that the assets or liabilities carried at fair value be disclosedby the input level under which they were valued. The input levels defined underFASB ASC 820 are as follows:
| Level  1: | Quoted  market prices in active markets for identical assets and liabilities.                                                                                                                                                                                                                                  |
|-----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Level  2: | Observable  inputs other than defined in Level 1, such as quoted prices for similar  assets or liabilities; quoted prices in markets that are not active; or other  inputs that are observable or can be corroborated by observable market data  for substantially the full term of the assets or liabilities. |
| Level  3: | Unobservable  inputs that are not corroborated by observable market data.                                                                                                                                                                                                                                      |

Thefollowing table summarizes financial assets and liabilities that are measuredat fair value on a recurring basis as of December 31, 2010:
| Level  2:                     |         |
|-------------------------------|---------|
| Interest  Rate Swap liability | $71,000 |

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**Note10.         Income Taxes**

We account for income taxes in accordance with FASBASC 740, Income Taxes. FASB ASC 740 prescribes the use of the liability methodwhereby deferred tax asset and liability account balances are determined basedon differences between the financial reporting and tax bases of assets andliabilities and are measured using the enacted tax rates and laws that will bein effect when the differences are expected to reverse. The Company provides avaluation allowance, if necessary, to reduce deferred tax assets to theirestimated realizable value. The deferred tax assets are reviewed periodicallyfor recoverability, and valuation allowances are adjusted as necessary.  Webelieve it is more likely than not that the recorded deferred tax assets willbe realized.

Althoughthe Company has not incurred interest and penalties associated withunrecognized tax benefits; future interest and penalties associated withunrecognized tax benefits, if any, will be recognized in income tax expense inthe Consolidated Statements of Operations and the corresponding liabilityin income taxes payable or income taxes receivable, net on theConsolidated Balance Sheets.

TheCompany is currently not undergoing any examinations by any taxingjurisdictions, with the tax years for the Fiscal Years Ending September 30, 2005through 2009 remaining open to examination.

**Note 11.         Non-controllingInterests**

TheCompany adopted the provisions of FASB ASC 810, Consolidation, effective October 1, 2009. FASB ASC810 requires non-controlling interests, previously called minority interests,to be presented as a separate item in the equity section of the consolidatedbalance sheet. 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.

**Note 12.         SubsequentEvents**

Wehave entered into a purchase and sale agreement for the sale of twocompany-owned restaurants in Colorado Springs, Colorado that was effectiveFebruary 1, 2011. The sale of one restaurant is anticipated to occur prior toFebruary 28, 2011 and the sale of the second restaurant is anticipated to occurprior to May 31, 2011. The net proceeds from the transaction is estimated to beapproximately $260,000 with an estimated gain on the sale of approximately$70,000.

**Note13.         Recent Accounting Pronouncements**

InJanuary 2010, the FASB issued an update regarding guidance over the disclosurerequirements of fair value measurements. This update adds new requirements fordisclosure about transfers into and out of Levels One and Two and also addsadditional disclosure requirements about purchases, sales, issuances, andsettlements relating to Level Three measurements.  The guidance is effectivefor reporting 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 no impact onthe fair value disclosures of the Company, as there have been no transfers outof Levels One or Two.

**Note 14.         StockTransactions**

OnDecember 13, 2010 the company completed a stock sale of 1,400,000 shares of CommonStock, par value $.001, at a price of $1.50 per share to one investor (see Note1. above for details of the stock sale).

OnDecember 13, 2010 the company received Board of Directors approval to effect aone-for-three reverse stock split of its Common Stock no later than December31, 2010. The reverse stock split was effected on December 31, 2010.Immediately prior to the reverse stock split the company had 8,177,989 of CommonStock outstanding and immediately following the reverse split the outstandingshares were approximately 2,725,996 (subject to additional issuance for roundingof fractional shares resulting from the reverse split).

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

**General**

This Form 10-Q contains or incorporates by referenceforward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933, as amended and the disclosure of risk factors in the Company'sform 10-K for the fiscal year ended September 30, 2010.  Also, documentssubsequently filed by us with the SEC and incorporated herein by reference maycontain forward-looking statements.  We caution investors that anyforward-looking statements made by us are not guarantees of future performanceand actual results could differ materially from those in the forward-lookingstatements as a result of various factors, including but not limited to thefollowing:

(I).         We compete with numerous well establishedcompetitors who have substantially greater financial resources and longeroperating histories than we do.  Competitors have increasingly offered selectedfood items and combination meals, including hamburgers, at discounted prices,and continued discounting by competitors may adversely affect revenues andprofitability of Company restaurants.

(II).       We may be negativelyimpacted if we experience consistent same store sales declines.  Same storesales comparisons will be dependent, among other things, on the success of ouradvertising and promotion of new and existing menu items.  No assurances can begiven that such advertising and promotions will in fact be successful.

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

* *

*Restaurant Locations*

We currently operate and franchise a total of forty-eightGood Times restaurants, of which forty-four are in Colorado, with forty in theDenver greater metropolitan area, three in Colorado Springs and one inSilverthorne. Seven of these restaurants are "dual brand", operated pursuant toa Dual Brand Test Agreement with Taco John's International, of which there is onein North Dakota, two in Wyoming, and four in Colorado.
|                                         | **Total** | **Denver, CO**

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

**Other** | **Idaho** | **Wyoming** | **North Dakota** |
|-----------------------------------------|-----------|-----------------------------------|-------------------------|-----------|-------------|------------------|
| Good Times co-owned &  co-developed | 25        | 22                                | 3                       |           |             |                  |
| Good Times franchised                   | 16        | 14                                | 1                       | 1         |             |                  |
| Dual brand co-owned                     | 2         | 2                                 |                         |           |             |                  |
| Dual brand franchised                   | 5         | 2                                 |                         |           | 2           | 1                |
| **Total**                               | **48**    | **40**                            | **4**                   | **1**     | **2**       | **1**            |
|                                 | **As of December 31,** |
|---------------------------------|------------------------|
|                                 | **2010**               | **2009** |
| Company-owned  restaurants      | 20                     | 21 |
| Co-developed  restaurants       | 7                      | 9 |
| Franchise  operated restaurants | 21                     | 21 |
| **Total restaurants**           | **48**                 | **51** |

*Fiscal2010:* 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 Note 3.above - Discontinued Operations). Additionally in June 2010 we sold oneco-developed restaurant in Denver, Co to a new franchisee operator.

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*Fiscal2011:* In December 2010 a franchiseeoperating a Good Times restaurant in Grand Junction, Colorado terminated theirfranchise agreement and closed the restaurant. We anticipate that franchiseesmay close up to two low volume franchised restaurants in fiscal 2011. We haveentered into a purchase and sale agreement for the sale of two company-ownedrestaurants in Colorado Springs, Colorado that was effective February 1, 2011.See the "Liquidity and Capital Resources" section below for further details.

The following presents certain historical financialinformation of our operations.  This financial information includes results forthe three months ended December 31, 2010 and results for the three months endedDecember 31, 2009.

**Results of Operations**

 

*Net Revenues*

Net revenues for the three months ended December 31,2010 increased $334,000 (7%) to $5,085,000 from $4,751,000 for the three monthsended December 31, 2009.  Same store restaurant sales increased $523,000 (13.4%)during the three months ended December 31, 2010 for the restaurants that wereopen for the full three month periods ending December 31, 2010 and December 31,2009.  Restaurants are included in same store sales after they have been open afull fifteen months and only Good Times restaurants are included with dualbranded restaurants excluded. Restaurant sales decreased $175,000 due to oneco-developed store sold to a franchisee in June 2010. Restaurant sales decreased$7,000 due to two company-owned dual branded restaurants not included in samestore sales. Restaurant sales increased $3,000 due to one non-traditionalcompany-owned restaurant not included in same store sales.

Our first quarter same store restaurant sales werepositively affected by better than average weather in both October and December2010. Same store sales increased 20.3% and 14.2% in October and December 2010,respectively. The positive same store sales results for the first fiscalquarter of 2011 also reflect the continuation of the positive momentum weexperienced in the last fiscal quarter of 2010 when same store sales increased1.8%, after nine consecutive quarters of same store sales declines.

Our outlook for fiscal 2011 is more optimistic basedon the last eight months' sales trends, however our sales trends are influencedby many factors and the macroeconomic environment remains challenging forsmaller restaurant chains.  Our average transaction has increased in Augustthrough December 2010 compared to 2009 and we are continuing to manage ourmarketing communications to balance growth in customer traffic and theiraverage expenditure.

Franchise revenues for the three months ended December31, 2010 decreased $10,000 to $103,000 from $113,000 for the three months endedDecember 31, 2009 due to a decrease in franchise fees and royalties. Same storeGood Times franchise restaurant sales increased 10.3% during the three monthsended December 31, 2010 for the franchise restaurants that were open for thefull periods ending December 31, 2010 and December 31, 2009. Dual brandedfranchise restaurant sales decreased .2% during the three months ended December31, 2010, compared to the same prior year period. Operations of a Good Timeslicensee operating in the Pepsi Center in Denver, Colorado was closed in latefiscal 2010 contributing to the reduction in our franchise royalty income forthe three months ended December 31, 2010 compared to the same prior yearperiod.

*Restaurant Operating Costs*

Restaurant operating costs as a percent of restaurantsales were 96.4% during the three months ended December 31, 2010 compared to 99.8%in the same prior year period.

The changes in restaurant-level costs are explained asfollows:
| Restaurant-level costs for  the period ended December 31, 2009 | 99.8%              |
|----------------------------------------------------------------|--------------------|
| Increase in food and  packaging costs                          | 2.2%               |
| Decrease in payroll and  other employee benefit costs          | (2.2%)             |
| Decrease in occupancy and  other operating costs               | (2.5%)             |
| Decrease in depreciation  and amortization                     |    (.9%) |
| Restaurant-level costs for  the period ended December 31, 2010 | 96.4%              |

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*Food and Packaging Costs*

Forthe three months ended December 31, 2010 our food and paper costs increased $223,000to $1,758,000 (35.3% of restaurant sales) from $1,535,000 (33.1% of restaurantsales) compared to the same prior year period.

Infiscal 2010 our weighted food and packaging costs increased approximately 11%. The cumulative weighted menu price increases taken during fiscal 2010 were 1.7%. Most of the 2010 menu price increases were taken in the last four months offiscal 2010 aggregating a 7.1% cumulative increase. The introduction of the$2.89 Craver combo meals in May 2010 negatively impacted our cost of sales byan estimated 1% of restaurant sales however the new value offer is asignificant driver of customer traffic. We anticipate limited price increasesin fiscal 2011 with continued cost pressure on several core commodities,however we anticipate our food and packaging costs as a percentage of saleswill decrease in fiscal 2011 from a combination of price increases, productsales mix changes and recipe modifications.

*Payroll and OtherEmployee Benefit Costs*

For the three months ended December 31, 2010 ourpayroll and other employee benefit costs increased $20,000 to $1,759,000 (35.3%of restaurant sales) from $1,739,000 (37.5% of restaurant sales) compared tothe same prior year period.

The decrease in payroll and other employee benefitexpenses as a percent of restaurant sales for the three month period ended December31, 2010 is primarily the result of higher restaurant sales. Because payrollcosts are semi-variable in nature they decrease as a percentage of restaurantsales when there is an increase in restaurant sales.

In July 2010 we eliminated approximately $80,000 ofannual payroll costs through salary reductions and salary eliminations.

*Occupancy and OtherOperating Costs*

For the three months ended December 31, 2010 ouroccupancy and other operating costs decreased $40,000 to $1,083,000 (21.7% ofrestaurant sales) from $1,123,000 (24.2% of restaurant sales) compared to thesame prior year period.

For the three month period ended December 31, 2010 weexperienced decreases in rent, utility costs, common area maintenance costs andrepairs and maintenance costs compared to the same prior year period primarilydue to the sale of one co-developed restaurant in June 2010. Additionally,during fiscal 2010 we successfully negotiated the reduction of base rents atfour company-owned restaurants. The reductions will result in total savings ofapproximately $96,000 per year. We are also continuing to negotiate rentreductions on additional restaurants.

*Depreciation and Amortization*

For the three months ended December 31, 2010, ourdepreciation and amortization decreased $28,000 to $204,000 (4.1% of restaurantsales) from $232,000 (5% of restaurant sales) compared to the same prior yearperiod.

The decrease in depreciation and amortization for thethree month period ended December 31, 2010 is primarily due to the sale of oneco-developed restaurant in June 2010 as well as declining depreciation expensein our aging company-owned and co-developed restaurants.

*General and Administrative Costs*

For the three months ended December 31, 2010, generaland administrative costs decreased $26,000 to $344,000 (6.8% of total revenues)from $370,000 (7.8% of total revenues) for the same prior year period.

The decrease in general and administrative costs forthe three months ended December 31, 2010 compared to the same prior year periodis primarily attributable to decreases in payroll and employee benefit costs of$24,000 and a $7,000 decrease in our incentive stock option compensationexpense. In July 2010 we implemented salary reductions which will result inannual savings in payroll and employee benefit costs of approximately $89,000. Thedecreases in payroll and employee benefit costs were partially offset by anincrease in our training and recruiting costs of $8,000 attributable to ourcrew incentive programs.

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*Advertising Costs*

For the three months ended December 31, 2010advertising costs decreased $53,000 to $217,000 (4.4% of restaurant sales) from$270,000 (5.8% of restaurant sales) for the same prior year period.

Contributions are made to the advertising materialsfund and regional advertising cooperative based on a percentage of sales andthere was a reduction in the percentage contribution for fiscal 2010 comparedto the same prior year period.

* *

*Franchise Costs*

For the three months ended December 31, 2010,franchise costs decreased $13,000 to $17,000 (.3% of total revenues) from $30,000(.6% of total revenues) for the same prior year period. The decrease infranchise costs for the current three month period is primarily attributable tosponsorship costs incurred in the prior year period associated with the GoodTimes licensee operating in the Pepsi Center in Denver, Colorado which closedin late fiscal 2010.

*Loss on Sale of Assets*

For the three months ended December 31, 2010, our gainon the sale of assets increased $5,000 to $12,000 from $7,000 for the sameprior year period. The current three month period ending December 31, 2010includes a gain of $4,000 related to a land sale in December 2010.

*Loss from Operations*

We had a loss from operations of ($285,000) in thethree months ended December 31, 2010 compared to a loss from operations of ($541,000)for the same prior year period.

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

* *

*Loss from Continuing Operations*

The net loss from continuing operations was ($384,000)for the three months ended December 31, 2010 compared to a net loss fromcontinuing operations of ($611,000) for the same prior year period. The changefrom the three month period ended December 31, 2009 to December 31, 2010 wasattributable to the decrease in loss from operations for the three months endedDecember 31, 2010, as well as: 1) an increase in net interest expense of $32,000compared to the same

prior year period; and 2) an increase in theunrealized gain related to our interest rate swap liability of $3,000 compared tothe same prior year period.  Net interest expense for the three months ended December31, 2010 includes non-cash amortization of debt issuance costs of $28,000related to: 1) the extension of the PFGI II loan in January, 2010; and 2) the loan agreement with W Capital and John T. MacDonaldentered into in February 2010.

*Loss from Discontinued Operations*

The loss from discontinued operations of $71,000 forthe three month period ended December 31, 2009 represents the results ofoperations attributable to our Commerce City, Colorado dual-branded restaurantthat was closed in March 2010 and our Denver, Colorado co-developed restaurantthat was closed in June 2010. The loss from discontinued operations of $4,000 forthe three month period ended December 31, 2010 represents our lease liabilitycosts in excess of our accrued liability for the two closed locations.

**Liquidity and Capital Resources**

* *

*Cash and Working Capital*

Asof December 31, 2010, we had $1,251,000 in cash and cash equivalents on hand. We currently plan to use the cash balance and any cash generated fromoperations for our working capital needs and capital improvements to existingrestaurants in fiscal 2011 and beyond. As of December 31, 2010, we had aworking capital deficit of $228,000 primarily due to 2010 property taxes ofapproximately $420,000 due in April 2011. We will require additional capitalsources for the development of new restaurants.

Wehave entered into a purchase and sale agreement for the sale of twocompany-owned restaurants in Colorado Springs, Colorado that was effectiveFebruary 1, 2011. The sale of one restaurant will occur prior to February 28,2011 and the sale of the second restaurant will occur prior to May 31, 2011. Thenet proceeds from the transaction is estimated to be approximately $260,000with an estimated gain on the sale of approximately $70,000.

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*Financing Activities*

WellsFargo Note Payable: In May 2007 weborrowed $1,100,000 from Wells Fargo Bank under a note payable with an eightyear term with a floating interest rate at .50% below prime.  We simultaneouslyentered into an interest rate swap transaction with Wells Fargo Bank for thefull $1,100,000 with a fixed interest rate of 7.77% for the full eight yearterm coinciding with the note payable.  As previously reported, we were indefault of certain financial loan covenants and had been operating under aforbearance and reservation of rights agreement with Wells Fargo.   Aspreviously disclosed in the Company's current report on Form 8-K filed December17, 2010, we entered into a new Credit and Loan Agreement that modified theloan covenants and provided additional collateral to Wells Fargo for theremaining loan balance of $689,681. In addition we anticipate using $90,000 ofthe proceeds from the sale of two company-owned restaurants in ColoradoSprings, Colorado to further reduce the note payable and thereby releasingcertain collateral.  The loan covenants were modified to require minimumTangible Net Worth of $2,500,000, Total Liabilities Divided by Tangible NetWorth not greater than 3.0 to 1.0 and an EBITDA Coverage Ratio not less than0.9 to 1.0 as of the end of the first fiscal quarter of 2012, not less than 1.2to 1.0 as of the end of the second fiscal quarter of 2012 and not less than 1.5to 1.0 thereafter. As of December 31, 2010 we are in compliance with all loancovenants.

PFGIII LLC Promissory Note: In July 2008,we entered into a $2,500,000 promissory note with an unrelated third party(PFGI II, LLC) and amended that note on April 20, 2009 extending the maturityto July 10, 2010. Effective January 2, 2010, the Company entered into anagreement to amend its loan with PFGI II LLC.  The maturity date was extendedto December 31, 2012, the interest rate was increased to 8.65% and monthlypayments of principal and interest are payable beginning January 31, 2010,based upon a 25 year amortization prior to maturity. In connection with the agreement,the Company issued a three-year warrant dated January 2, 2010 to PFGI II, LLCwhich provides that PFGI II, LLC may at any time from January 2, 2010 until December31, 2012 purchase up to 37,537 shares of the Company's common stock at anexercise price of $3.33 per share. The number of shares purchasable uponexercise of the warrant 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 issued to PFGI II, LLC wasdetermined to be $79,000 with the following assumptions; 1) risk free interestrate of 1.7%, 2) an expected life of 3 years, and 3) an expected dividend yieldof zero. The fair value of $79,000 was charged to the note discount andcredited to Additional Paid in Capital. The note discount is being amortizedover the term of thirty six months and charged to interest expense.

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 a first deed of trust on one real property funded by the line of credit.The total outstanding balance on the promissory note was $1,661,000 at December31, 2010.  Of the $1,661,000 outstanding balance, $1,595,000 is related to theconstruction of one company-owned restaurant in Firestone, Colorado that openedin October 2008. The fully developed restaurant is currently being marketed inthe sale-leaseback market.  On December 5, 2010 the company sold a parcel ofland in Aurora, Colorado and used approximately $812,000 of the net proceeds toreduce the loan balance.

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

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

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W. Capital andJohn T. MacDonald Loan Agreement: On February 1, 2010, theCompany entered into a loan agreement with W Capital, Inc. ("W Capital"), JohnT. McDonald ("McDonald") and Golden Bridge, pursuant to which the lenders madeloans totaling $200,000, with up to an additional $200,000 available throughApril 30, 2010, to be used for restaurant marketing and other working capitaluses of GTDT.  As set forth below, the loan agreement was subsequently amendedas of April 1, 2010 to remove Golden Bridge as a lender and to replace it withadditional loans from W Capital and McDonald.  On December 13, 2010, theoutstanding principal amount of the Bridge Loans was paid in full from theproceeds of the SII Investment Transaction, and accrued interest on the BridgeLoans was converted into 26,477 shares of Common Stock.

Inconnection with the Bridge Loans, the Company issued warrants dated February 1,2010 to W Capital and McDonald which provide that the lenders may at any time fromFebruary 1, 2010 until two years from the date of repayment or conversion ofthe Bridge Loans purchase up to an aggregate of 16,667 shares of the Company's CommonStock at an exercise price of 25% less than the average price of the Company'scommon stock during the 20 days prior to the exercise date, provided, however,that the exercise price shall not be below $2.25 per share nor above $3.24 per share. Pursuant to the terms of the loan agreement, because the Bridge Loans were notrepaid prior to August 1, 2010, the Company issued warrants to W Capital andMcDonald for the purchase of 16,667 additional shares of the Company's Common Stockupon the same terms as the initial warrants.  The number of shares purchasableupon exercise of the warrants issued to W Capital and McDonald and the exerciseprice are subject to customary anti-dilution adjustments upon the occurrence ofany stock dividends, stock splits, reverse stock splits, recapitalizations,reclassifications, stock combinations or similar events.  The warrants willexpire on December 12, 2012.

Thefair value of the warrants issued February 1, 2010 was determined to be $38,000with the following assumptions: 1) risk free interest rate of 1.41%, 2) anexpected life of 2.5 years, and 3) an expected dividend yield of zero. The fairvalue of $38,000 was charged to the note discount and credited to AdditionalPaid in Capital. The note discount was amortized over the term of seven monthsand charged to interest expense.

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

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

*SII Investment Transaction*

OnOctober 29, 2010, the Company and SII entered into the Purchase Agreement,pursuant to which the Company agreed to sell, and SII agreed to purchase, 1,400,000Shares of Common Stock at a purchase price of $1.50 per share, or an aggregatepurchase price of $2,100,000.  The Purchase Agreement was amended on December13, 2010.  On December 13, 2010, the Company and SII completed the SIIInvestment Transaction through the issuance and sale of the Shares to SII.  OnDecember 13, 2010, the Company and SII also entered into a Registration RightsAgreement, pursuant to which the Company granted SII certain registrationrights with respect to resale of the Shares.  As a result of the completion ofthe SII Investment Transaction, SII became the beneficial owner of approximately51.4 percent of the Company's outstanding Common Stock.

ThePurchase Agreement provides that for so long as SII holds more than 50 percentof our outstanding common stock, (i) our Board of Directors shall consist ofseven members, and (ii) SII will have the right to designate four members ofour Board.  In addition, the Purchase Agreement provides that for a period ofthree years following the Closing, as long as SII continues to own at least 80percent of its Common Stock acquired, SII will have a right of first refusal topurchase additional securities which are offered and sold by the Company forthe purpose of maintaining its percentage interest in the Company.

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

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*CapitalExpenditures*

Wedo not have any plans for any significant capital expenditures for the balanceof fiscal 2011, other than normal recurring capital expenditures for existingrestaurants and installation of new menu boards. Additional commitments for thedevelopment of new restaurants in fiscal 2011 and beyond will depend on theCompany's sales trends, cash generated from operations and our access to additionalcapital.

*CashFlows*

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

Net cash used in operating activities was $349,000 forthe three months ended December 31, 2009. The net cash used in operatingactivities for the three months ended December 31, 2009 was the result of a netloss of ($682,000) as well as cash and non-cash reconciling items totaling $333,000(comprised of depreciation and amortization of $240,000, stock basedcompensation expense of $22,000, discontinued operations costs of $51,000, anaccounts payable increase of $103,000 and a net increase in other operatingassets and liabilities of $19,000).

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

Net cash used in investing activities for the threemonths ended December 31, 2009 was $14,000 which reflects payments of $19,000 formiscellaneous restaurant related capital expenditures and $5,000 in principalpayments received on loans to franchisees.

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

Net cash used in financing activities for the threemonths ended December 31, 2009 was $2,000, which includes principal payments onnotes payable and long term debt of $31,000 and receivables fromnon-controlling interests of $29,000.

*Contingencies*

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

*SubsequentEvents*

Wehave entered into a purchase and sale agreement for the sale of twocompany-owned restaurants in Colorado Springs, Colorado that was effectiveFebruary 1, 2011. The sale of one restaurant is anticipated to occur prior toFebruary 28, 2011 and the sale of the second restaurant is anticipated to occurprior to May 31, 2011. The net proceeds from the transaction is estimated to beapproximately $260,000 with an estimated gain on the sale of approximately$70,000.

**Impact of Inflation**

Infiscal 2010 our weighted food and packaging costs increased approximately 11%. The cumulative weighted menu price increases taken during fiscal 2010 were 1.7%. Most of the 2010 menu price increases were taken in the last four months offiscal 2010 aggregating a 7.1% cumulative increase. We anticipate moderateupward pressure on our commodity costs for the balance of fiscal 2011. We are planningmoderate price increases in fiscal 2011, which may or may not be sufficient torecover increased commodity costs or increases in other operating expenses. 

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**Seasonality**

Revenues of the Company are subject to seasonalfluctuation based primarily on weather conditions adversely affectingrestaurant sales in December, January, February and March.

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

      Not required.

** **

**ITEM 4T.             CONTROLSAND PROCEDURES**

**Conclusion Regarding the Effectiveness of DisclosureControls and Procedures**

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

**Changes in Internal Control over Financial Reporting**

There have been no significant changes in theCompany's internal control over financial reporting that occurred during theCompany's fiscal quarter ended December 31, 2010 that have materially affected,or are reasonably likely to materially affect, the Company's internal controlover financial reporting.

**PART II - 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.             RISKFACTORS**

                                Notrequired.

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

                                None.

**ITEM 3.                DEFAULTSUPON SENIOR SECURITIES**

                              None.

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

**ITEM 5.                OTHERINFORMATION**

                                None.

** **

**ITEM 6.                EXHIBITS**

      (a)         Exhibits. The following exhibits are furnished as part of this report:
| Exhibit No. | Description                                                                      |
|-------------|----------------------------------------------------------------------------------|
| *31.1       | Certification of Chief  Executive Officer pursuant to 18 U.S.C. Section 1350     |
| *31.2       | Certification of Controller  pursuant to 18 U.S.C. Section 1350                  |
| *32.1       | Certification of Chief  Executive Officer and Controller pursuant to Section 906 |

*filed herewith

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**SIGNATURES**

In accordance with therequirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.
|                    | **GOOD  TIMES RESTAURANTS INC.**                        |
|-------------------------|---------------------------------------------------------|
| DATE: February 14, 2011 |                                                         |
|                         | /s/ Boyd E. Hoback                                      |
|                         | Boyd  E. Hoback

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

Controller                           |

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