UNITEDSTATES

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, 2008                                  |
|                                                                                    |
| 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) |

601CORPORATE CIRCLE, GOLDEN, CO 80401

(Addressof Principal Executive Offices, Including Zip Code)

(303)384-1400

(Registrant'sTelephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed allreports required to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

Yes **X**  No __

Indicate by check mark whether the registrant is a largeaccelerated filer, an accelerated filer, a non-accelerated filer or a smaller reportingcompany, 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 17, 2009, there were 3,898,559 shares of theRegistrant's common stock, par value $0.001 per share, issued and outstanding.

 

----

 

**Form10-Q**

**QuarterEnded December 31, 2008**

| ** ** | **INDEX**                                                                              | **PAGE**     |
|------------|----------------------------------------------------------------------------------------|--------------|
|            |                                                                                        |              |
|            | **PART  I - FINANCIAL INFORMATION**                                                    |              |
|            |                                                                                        |              |
| Item  1.   | Financial Statements                                                                   |              |
|            |                                                                                        |              |
|            | Condensed Consolidated Balance Sheets -                                                |              |
|            | December 31, 2008 (unaudited) and September 30, 2008                                   | 3 - 4        |
|            |                                                                                        |              |
|            | Condensed  Consolidated Statements of Operations (unaudited)                      |              |
|            | For the three  months ended December 31, 2008 and 2007                                 | 5            |
|            |                                                                                        |              |
|            | Condensed  Consolidated Statements of Cash Flow (unaudited)                            |              |
|            | For the three  months ended December 31, 2008 and 2007                                 | 6            |
|            |                                                                                        |              |
|            | Notes  to Financial Statements                                                         | 7 - 10       |
|            |                                                                                        |              |
| Item  2.   | Management's  Discussion and Analysis of Financial Condition and Results of Operations | 11 - 16      |
|            |                                                                                        |              |
| Item  3.   | Quantitative  and Qualitative Disclosures About Market Risk                            | 16           |
|            |                                                                                        |              |
| Item 4T.   | Controls  and Procedures                                                               | 16           |
|            |                                                                                        |              |
|            | **PART  II - OTHER INFORMATION**                                                       |              |
|            |                                                                                        |              |
| Item 1.    | Legal  Proceedings                                                                     | 17           |
|            |                                                                                        |              |
| Item 1A.   | Risk  Factors                                                                          | 17           |
|            |                                                                                        |              |
| Item  2.   | Unregistered  Sales of Equity Securities and Use of Proceeds                           | 17           |
|            |                                                                                        |              |
| Item  3.   | Defaults  Upon Senior Securities                                                       | 17           |
|            |                                                                                        |              |
| Item  4.   | Submission  of Matters to a Vote of Security Holders                                   | 17           |
|            |                                                                                        |              |
| Item  5.   | Other  Information.                                                                    | 17           |
|            |                                                                                        |              |
| Item  6.   | Exhibits                                                                               | 17           |
|            |                                                                                        |              |
|            | **SIGNATURES**                                                                         | 17           |
|            | ** **                                                                             |              |
|            | **CERTIFICATIONS**                                                                     | Exhibit 31.1 |
|            | ** **                                                                             | Exhibit 31.2 |
|            | ** **                                                                             | Exhibit 32.1 |

2

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**PART I - FINANCIALINFORMATION**

**ITEM 1.            FINANCIAL STATEMENTS**

**GOOD TIMESRESTAURANTS INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**ASSETS**

|                                                                                            | **Unaudited** |        |               |
|--------------------------------------------------------------------------------------------|---------------|--------|---------------|
|                                                                                            | December 31,  |        | September 30, |
|                                                                                            | 2008          |        | 2008          |
| CURRENT  ASSETS:                                                                           |               |        |               |
|       Cash  and cash equivalents                                  | $786,000      |        | $1,414,000    |
|       Receivables,  net of allowance for doubtful

accounts of $0 | 158,000       |        | 160,000       |
|       Prepaid  expenses and other                                 | 75,000        |        | 79,000        |
|       Inventories                                                 | 215,000       |        | 240,000       |
|       Notes  receivable                                           | 33,000        |   | 35,000        |
|            Total  current assets         | 1,267,000     |        | 1,928,000     |
|                                                                                            |               |        |               |
| PROPERTY  AND EQUIPMENT, at cost:                                                          |               |        |               |
|       Land  and building                                          | 6,586,000     |        | 6,566,000     |
|       Leasehold  improvements                                     | 4,107,000     |        | 4,017,000     |
|       Fixtures  and equipment                                     | 8,387,000     |   | 8,303,000     |
|                                                                                            | 19,080,000    |        | 18,886,000    |
|                                                                                            |          |        |          |
|       Less  accumulated depreciation and amortization             | (10,913,000)  |        | (10,602,000)  |
|                                                                                            | 8,167,000     |        | 8,284,000     |
|                                                                                       |          |   |          |
|       Assets  held for sale                                       | 1,595,000     |   | 1,574,000     |
|                                                                                       |          |   |          |
| OTHER  ASSETS:                                                                             |          |   |          |
|       Notes  receivable, net of current portion                   | 102,000       |        | 83,000        |
|       Deposits  and other assets                                  | 49,000        |        | 51,000        |
|                                                                                            | 151,000       |        | 134,000       |
|                                                                                            |               |        |               |
| TOTAL  ASSETS                                                                              | $11,180,000   |        | $11,920,000   |
|                                                                                            |               |        |               |

### LIABILITIES AND STOCKHOLDERS' EQUITY

|  CURRENT  LIABILITIES:                                                                     |            |        |            |
|-------------------------------------------------------------------------------------------------|------------|--------|------------|
|       Current  maturities of long-term debt                            | $3,440,000 |        | $2,304,000 |
|       Accounts  payable                                                | 364,000    |        | 628,000    |
|       Deferred  income                                                 | 74,000     |        | 139,000    |
|       Other  accrued liabilities                                       | 1,031,000  |        | 939,000    |
|             Total  current liabilities   | 4,909,000  |        | 4,010,000  |
|                                                                                                 |            |        |            |
| LONG-TERM  LIABILITIES:                                                                         |       |   |       |
|       Debt, net of  current portion                                    | -          |        | 846,000    |
|       Deferred  liabilities                                            | 995,000    |        | 1,071,000  |
|             Total  long-term liabilities | 995,000    |        | 1,917,000  |
|                                                                                                 |            |        |            |
| MINORITY INTERESTS IN PARTNERSHIPS                                                              | 546,000    |        | 584,000    |

 

3

See accompanyingnotes to condensed consolidated financial statements

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**GOOD TIMESRESTAURANTS INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS (Continued)**

|                                                                                                                               | **Unaudited** |        |               |
|------------------------------------------------------------------------------------------------------------------------------------|---------------|--------|---------------|
|                                                                                                                               | December 31,  |        | September 30, |
|                                                                                                                               | 2008          |   | 2008          |
| STOCKHOLDERS'  EQUITY:                                                                                                             |          |   |          |
| Preferred  stock, $.01 par value;                                                                                                  |               |        |               |
|         5,000,000  shares authorized, none issued                                               |               |        |               |
|          and outstanding as of September 30, 2008 and                                           |               |        |               |
|          December 31, 2008                                                                      | -             |        | -             |
|                                                                                                                                    |               |        |               |
| Common  stock, $.001 par value; 50,000,000 shares                                                                                  |               |        |               |
|          Authorized, 3,898,559 shares issued and                                                |               |        |               |
|          Outstanding as of December 31, 2008 and                                                |               |        |               |
|          3,898,559 shares issued and outstanding as                                             |               |        |               |
|          of September 30, 2008                                                                  | 4,000         |        | 4,000         |
|          Accumulated other comprehensive loss                                                   | -             |        | (68,000)      |
|         Capital  contributed in excess of par value                                             | 17,652,000    |        | 17,633,000    |
|         Accumulated  deficit                                                                    | (12,926,000)  |        | (12,160,000)  |
|                   Total  stockholders' equity | 4,730,000     |        | 5,409,000     |
|                                                                                                                                    |               |        |               |
| TOTAL  LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                        | $ 11,180,000  |   | $11,920.000   |

4

See accompanyingnotes to condensed consolidated financial statements

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**GOODTIMES RESTAURANTS INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

|                                                                                                  | For the Three Months EndedDecember 31, |
|-------------------------------------------------------------------------------------------------------|----------------------------------------|
|                                                                                                  | 2008                                   |   | 2007 |
|                                                                                                  |                                   |   |   |
| NET REVENUES:                                                                                         |                                   |   |   |
|       Restaurant  sales, net                                                 | $5,507,000                             |  | $6,035,000 |
|       Franchise  revenues                                                    | 139,000                                |  | 161,000 |
|             Total  net revenues                | 5,646,000                              |  | 6,196,000 |
|                                                                                                       |                                        |  |  |
| RESTAURANT  OPERATING COSTS:                                                                          |                                   |   |   |
|       Food  and packaging costs                                              | 1,855,000                              |  | 1,846,000 |
|       Payroll and other employee benefit costs                               | 2,065,000                              |  | 2,129,000 |
|       Occupancy  and other operating costs                                   | 1,204,000                              |  | 1,119,000 |
|       Accretion  of deferred rent                                            | -                                      |  | 7,000 |
|       New  store opening costs                                               | 15,000                                 |  | - |
|       Depreciation  and amortization                                         | 311,000                                |  | 308,000 |
|            Total  restaurant operating costs        | 5,450,000                              |  | 5,409,000 |
|                                                                                                       |                                        |  |  |
|       General  and administrative costs                                      | 489,000                                |  | 555,000 |
|       Advertising  costs                                                     | 315,000                                |  | 370,000 |
|        Franchise costs                                                       | 40,000                                 |  | 96,000 |
|       Gain  on sale of restaurant building                                   | (8,000)                                |  | (8,000) |
|                                                                                                       |                                        |  |  |
| LOSS  FROM OPERATIONS                                                                                 | (640,000)                              |  | (226,000) |
|                                                                                                       |                                        |  |  |
| OTHER  INCOME AND (EXPENSES)                                                                          |                                   |   |   |
|       Minority  income (expense), net                                        | 34,000                                 |  | (32,000) |
|        Unrealized loss on interest rate swap                                 | (119,000)                              |  | - |
|       Interest  income (expense), net                                        | (41,000)                               |  | 3,000 |
|             Total  other income and (expenses) | (126,000)                              |  | (29,000) |
|                                                                                                       |                                        |  |  |
| NET LOSS                                                                                              | ($766,000)                             |  | ($255,000) |
|                                                                                                  |                                   |   |   |
| BASIC  AND DILUTED LOSS PER COMMON SHARE                                                              | $(.20)                                 |   | $(.07) |
|                                                                                                       |                                        |  |  |
| WEIGHTED  AVERAGE COMMON SHARES AND EQUIVALENTS USED IN PER SHARE CALCULATION:                        |                                   |   |   |
|                                                                                                       |                                        |  |  |
|       BASIC  AND DILUTED                                                     | 3,898,559                              |  | 3,873,795 |

5

See accompanyingnotes to condensed consolidated financial statements

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**GOODTIMES RESTAURANTS INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

|                                                                                                                                           | For the Three  Months Ended

December 31,                 |
|-------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------|
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                                                                    |                                                           |  |  |
|      Net  loss                                                                                                        | ($766,000)                                                |  | ($255,000) |
|      Adjustments  to reconcile net loss to net cash                                                                   |                                                           |  |  |
|         provided by (used in) operating activities:                                                              |                                                           |  |  |
|          Depreciation  and amortization                                                           | 311,000                                                   |  | 308,000 |
|          Stock  based compensation expense                                                        | 19,000                                                    |  | 24,000 |
|          Unrealized  loss on interest rate swap                                                   | 119,000                                                   |  | - |
|          Accretion  of deferred rent                                                              | -                                                         |  | 7,000 |
|          Minority  interest                                                                       | (34,000)                                                  |  | 32,000 |
|          Recognition  of deferred (gain) on sale of restaurant building                           | (8,000)                                                   |  | (8,000) |
|          Changes  in operating assets and liabilities:                                            |                                                           |  |  |
|               (Increase)  decrease in:                                   |                                                           |  |  |
|                  Receivables  and other                   | 6,000                                                     |  | (22,000) |
|                  Inventories                              | 25,000                                                    |  |  (5,000) |
|                  Deposits  and other                      | 9,000                                                     |  | (3,000) |
|             (Decrease)  increase in:                                               |                                                           |  |  |
|                  Accounts  payable                        | (264,000)                                                 |  | (64,000) |
|                  Accrued  liabilities and deferred income | (90,000)                                                  |  | (66,000) |
|              Net  cash used in operating activities                           | (673,000)                                                 |  | (52,000) |
|                                                                                                                                           |                                                           |  |  |
| CASH FLOWS USED IN  INVESTING ACTIVITIES                                                                                                  |                                                           |  |  |
|      Payments  for the purchase of property and equipment                                                             | (215,000)                                                 |  | (95,000) |
|      Loans  made to franchisees and to others                                                                         | (31,000)                                                  |  | - |
|      Payments  received on loans to franchisees and to others                                                         | 14,000                                                    |  | 24,000 |
|                Net  cash used in investing activities               | (232,000)                                                 |  | (71,000) |
|                                                                                                                                           |                                                           |  |  |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                                                                    |                                                           |  |  |
|      Principal  payments on notes payable, capital leases, and long-term debt                                         | (30,000)                                                  |  | (29,000) |
|      Net  Proceeds (repayments) on revolving lines of credit                                                          | 320,000                                                   |  | (750,000) |
|      Proceeds  from exercise of options                                                                               | -                                                         |  | 37,000 |
|      Distributions,  net of contributions paid to minority interests in partnerships                                  | (13,000)                                                  |  | (74,000) |
|                Net  cash provided by (used in) financing activities | 277,000                                                   |  | (816,000) |
|                                                                                                                                           |                                                           |  |  |
| NET CHANGE IN CASH AND CASH EQUIVALENTS                                                                                                   | (628,000)                                                 |  | (939,000) |
|                                                                                                                                           |                                                           |  |  |
| CASH AND CASH EQUIVALENTS, beginning of period                                                                                            | $1,414,000                                                |  | $2,465,000 |
|                                                                                                                                           |                                                           |  |  |
| CASH AND CASH EQUIVALENTS, end of period                                                                                                  | $786,000                                                  |  | $1,526,000 |
|                                                                                                                                           |                                                           |  |  |
| SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION:                                                                                       |                                                           |  |  |
|      Cash  paid for interest                                                                                          | $68,000                                                   |  | $24,000 |
|      Non-cash  deferred hedging losses                                                                                | $          - |  | $28,000 |

6

See accompanyingnotes to condensed consolidated financial statements

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**GOOD TIMESRESTAURANTS INC. AND SUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**Note 1. Basis of Presentation**

In the opinion of management, theaccompanying unaudited condensed consolidated financial statements contain all ofthe normal recurring adjustments necessary to present fairly the financialposition of the Company as of December 31, 2008, the results of its operationsand its cash flows for the three month period ended December 31, 2008.  Operating results for the three month period ended December 31, 2008 are not necessarily indicative of the results that may be expected for the year ending September 30, 2009.

Thecondensed consolidated balance sheet as of September 30, 2008 is derived from the audited financial statements, but does not include all disclosuresrequired by generally accepted accounting principles.  As a result, thesefinancial statements should be read in conjunction with the Company's Form10-KSB for the fiscal year ended September 30, 2008.

**Note2. Recent Developments**

After several years of same store sales growth,including several months of double digit growth in fiscal 2007 and early fiscal2008, we experienced a dramatic change in our sales trends, beginning in earlycalendar 2008, and continuing through January 2009, as the economy began toslow and competitive pricing pressures intensified.  Due to the dramaticdecline in consumer spending, the unprecedented rise in commodity costs and theupheaval in the credit markets, we suspended most of our restaurant development.

**Note3. Debt Covenant Compliance**

As reported on theform 8-K filed on January 23, 2009, we are in default of certain technical loancovenants as of December 31, 2008 on our note payable to Wells Fargo Bank, N.A.("the Bank"), therefore, all amounts owing under this facility are reflected ascurrent in the accompanying Condensed Consolidated Balance Sheet as of December31, 2008. We have never been in payment default on the note and expect to beable to remain current on payments in fiscal 2009, depending on our salestrends and cash flow from operations.  On February 9, 2009 we received aReservation of Rights letter from the Bank formally notifying us of the defaultof the Earnings Before Interest Taxes and Depreciation ("EBITDA") CoverageRatio of not less than 1.5 to 1.0 and the Tangible Net Worth of not less than$5,000,000 as set forth in the Credit Agreement for the period ending December31, 2008. The letter serves as notice that notwithstanding the foregoing eventsof default, the Bank is reserving all of its rights and remedies under theCredit Agreement and related agreements.

The Bank is not nowaccelerating the Loan and is willing to continue to accept regularly scheduledpayments of principal and interest under the Loan, however the acceptance ofpayments under the Loan does not constitute a modification of the CreditAgreement or a waiver of any of the covenants or of the Bank's rights orremedies under the Credit Agreement, including the right to accelerate the loanin the future after the giving of notice.  We will continue to work with theBank on a Required Corrective Action for compliance with existing or modifiedloan covenants.  There can be no assurance that the Bank will agree to modifyor waive any of the loan covenants or waive any of its rights or remedies underthe Credit Agreement and we would require additional financing to repay theloan balance.  The loan is secured by security agreements in the equipment offour restaurants and a blanket security on all equipment not covered by priorexisting security agreements.

**Note4. Stock-Based Compensation**

The Company measures the compensationcost associated with share-based payments by estimating the fair value of stockoptions as of the grant date using the Black-Scholes option pricing model. TheCompany believes that the valuation technique and the approach utilized todevelop the underlying assumptions are appropriate in calculating the fairvalues of the Company's stock options granted during all years presented. Estimatesof fair value are not intended to predict actual future events or the valueultimately realized by the employees who receive equity awards.

7

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Our net loss for the three monthsended December 31, 2008 and December 31, 2007 includes $19,000 and $24,000,respectively, of compensation costs related to our stock-based compensationarrangements.

During the three months ended December 31, 2008, we granted 12,000 non-statutory stock options and 68,400 incentive stock optionsboth with exercise prices of $1.47. The per share weighted average fair value was$.97 for both non-statutory stock option grants and incentive stock optiongrants.

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

|                         | **Incentive Stock  Options** | **Non-Statutory Stock  Options** |
|-------------------------|------------------------------|----------------------------------|
| Expected term (years)   | **6.5 **                | 6.7                         |
| Expected volatility     | **69.7%**                    | 69.2%                            |
| Risk-free interest rate | **2.79%**                    | 2.84%                            |
| Expected dividends      | **0**                        | 0                                |

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

SFAS123(R) requires the cash flows resulting from the tax benefits for taxdeductions in excess of the compensation expense recorded for those options(excess tax benefits) to be classified as financing cash flows. These excesstax benefits were $0 for the quarter ended December 31, 2008.

Asummary of stock option activity under our share-based compensation plan forthe quarter ended December 31, 2008 is presented in the following table:

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

**Life (Yrs.)** | **Aggregate Intrinsic  Value** |
|--------------------------|-----------------|--------------------------------------|--------------------------------------------------------------|--------------------------------|
| Outstanding-beg of year  |  353,942   | $4.04                                |                                                              |                                |
| Granted                  |  80,400    | $1.47                                |                                                              |                                |
| Exercised                | -               |                                      |                                                              |                                |
| Forfeited                |  (14,760)  | $4.91                                |                                                              |                                |
| Expired                  |   (39,951) | $3.11                                |                                                              |                                |
| Outstanding Dec 31, 2008 | 379,631         | $3.55                                | 6.3                                                          | $0                             |
|                          |                 |                                      |                                                              |                                |
| Exercisable Dec 31, 2008 | 271,356         | $3.68                                | 5.1                                                          | $0                             |

Asof December 31, 2008, the total remaining unrecognized compensation costrelated to unvested stock-based arrangements was $86,000 and is expected to berecognized over a period of 2.88 years.

There were no stock options exercisedduring the three months ended December 31, 2008.

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

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

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

8

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As of December 31, 2008 we were in default ofcertain technical covenants on the underlying term loan, see note 3 above, andwe have therefore recognized an unrealized loss of $119,000 in the accompanyingCondensed Consolidated Statement of Operations. As long as the underlying loanis in covenant default we will adjust the unrealized gain or loss through thestatement of operations as non-cash income or expense.

**Note6. Contingent Liabilities**

We remain contingently liable on various landleases underlying restaurants that were previously sold to franchisees.  Wehave never experienced any losses related to these contingent leaseliabilities, however if a franchisee defaults on the payments under the leases,we would be liable for the lease payments as the assignor or sublessor of thelease.  Currently there are no leases in default by the franchisees, howeverthere can be no assurance that there will not be in the future which could havea material effect on our future operating results.

**Note7. Assets Held for Sale**

We have classified$1,595,000 as assets held for sale in the accompanying condensed consolidatedbalance sheet. These costs are related to a site in Firestone, Colorado which has been fully developed.   A sale and leaseback agreement that was under contractin the first quarter of fiscal 2009 was terminated and the restaurant is beingmarketed for sale and leaseback.  The proceeds of a sale leaseback transaction,if consummated, are required to be used for the reduction of the line of creditpayable to PFGI II, LLC. The effect on our operating cash flow is not materialas the interest expense on the line of credit is approximately equal to theproposed rental rate on a sale leaseback transaction.

**Note 8.****Im****pairment ofLong-Lived Assets**

Annually we reviewthe undiscounted cash flows of each restaurant as compared to the net bookvalue of each restaurant's respective properties.  If the undiscounted cashflows of each restaurant are less than their respective net book values, therespective properties are written down to their fair market values. To date wehave not written down any assets due to impairment, however if we continue toexperience declining restaurant sales an asset impairment may materially affectfuture operating results.

**Note 9. Fair ValueMeasurements**

InSeptember 2006, the Financial Accounting Standards Board (FASB) issuedStatement of Financial Accounting Standards No. 157, "Fair ValueMeasurements" ("SFAS 157"). SFAS 157 defines fair value,establishes a framework for measuring fair value and expands disclosures aboutfair value measurements. Effective October 1, 2008, the Company adopted the provisions of SFAS 157 related to financial assets and liabilities, as well asother assets and liabilities carried at fair value on a recurring basis. Theseprovisions, which have been applied prospectively, did not have a materialimpact on the Company's consolidated financial statements. Certain otherprovisions of SFAS 157 related to other non-financial assets and liabilitieswill be effective for the Company on July 1, 2009, and will be applied prospectively. The adoption of the provisions of SFAS 157 related to othernon-financial assets and liabilities is not expected to have a material impacton the consolidated financial statements of the Company.

SFAS 157defines three levels of inputs that may be used to measure fair value andrequires that the assets or liabilities carried at fair value be disclosed bythe input level under which they were valued. The input levels defined underSFAS 157 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 forsimilar assets or liabilities; quoted prices in markets that are not active; orother inputs that are observable or can be corroborated by observable marketdata for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs thatare not corroborated by observable market data.

The following table summarizesfinancial assets and liabilities that are measured at fair value on a recurringbasis as of December 31, 2008:

Level 1

InterestRate Swap liability       $118,880

9

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**Note 10. Accounting Policies**

In June 2006, theFASB issued FIN 48, "Accounting for Uncertainty in Income Taxes - aninterpretation of FASB Statement 109," which clarifies the accounting foruncertainty in income taxes recognized in an enterprise's financial statementsin accordance with FAS 109, "Accounting for Income Taxes."  FIN48 provides interpretive guidance for the financial statement recognition andmeasurement of a tax position taken, or expected to be taken, in a tax return.FIN 48 requires the affirmative evaluation that it is more-likely-than-not,based on the technical merits of a tax position, that an enterprise is entitledto economic benefits resulting from positions taken in income tax returns. If atax position does not meet the "more-likely-than-not" recognition threshold,the benefit of that position is not recognized in the financial statements. FIN 48 was effective for the fiscal year beginning October 1, 2007 and there is no cumulative effect of applying FIN 48.

In February 2007, the Financial AccountingStandards Board ("FASB") issued SFAS No. 159.  "The Fair Value Option forFinancial Assets and Financial Liabilities - including an amendment of FASBStatement No. 115" ("SFAS 159"). SFAS 159 provides companies with an option toreport selected financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has beenelected are reported in earnings at each subsequent reporting date.  SFAS 159 waseffective for the fiscal year beginning October 1, 2008. The adoption of SFAS 159 did not have any effect on the Company's financial position, results ofoperations or cash flows.

**Note 11. Income Taxes**

On October 1, 2007, the Company adopted the provisions of FIN 48. There were no material taxpositions not meeting the "more-likely-than-not" recognition threshold and thereforethere is no cumulative effect of applying FIN 48.

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

The Company is currently not undergoing anyexaminations by any taxing jurisdictions, with the tax years for the FiscalYears Ending September 30, 2004 through 2008 remaining open to examination.

**Note12. New Accounting Pronouncements**

In December 2007, theFASB issued FASB Statement No. 141 (revised 2007), "Business Combinations"("FAS 141 (R)"), which establishes accounting principles and disclosurerequirements for all transactions in which a company obtains control overanother business.  This accounting pronouncement is effective for fiscal yearsbeginning after December 15, 2008, which will effective for our fiscal yearbeginning October 1, 2009.  The requirements of FAS 141 will only impact futurebusiness combination transactions that we may enter into.

In December 2007, theFASB issued FASB Statement No. 160, "Noncontrolling Interests in ConsolidatedFinancial Statements and amendment to ARB No. 51" ("FAS 160").  This standardprescribes the accounting by a parent company for minority interests held byother parties in a subsidiary of the parent company.  FAS 160 is effective forfiscal years beginning after December 15, 2008, which will be effective for ourfiscal year beginning October 1, 2009.  We are currently evaluating therequirements of FAS 160 and have not yet determined the impact on our financialstatements.

In March 2008, theFASB issued SFAS No. 161, "Disclosures about Derivative instruments and HedgingActivities" ("SFAS 161").  SFAS 161 amends and expands the disclosurerequirements in SFAS 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008, which will be effective for our interim period beginning January 1, 2009.  We are currently evaluating the requirements of FAS 161 and have not yetdetermined the impact on our financial statements.

**Note13. Stock Transactions**

None.

10

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

**                        AND RESULTS OF OPERATIONS**

### General

ThisForm 10-Q contains or incorporates by reference forward-looking statementswithin the meaning of Section 27A of the Securities Act of 1933, as amended andthe disclosure of risk factors in the Company's form 10-KSB for the fiscal yearended September 30, 2008.  Also, documents subsequently filed by us with theSEC and incorporated herein by reference may contain forward-lookingstatements.  We caution investors that any forward-looking statements made byus are not guarantees of future performance and actual results could differmaterially from those in the forward-looking statements as a result of variousfactors, including but not limited to the following:

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

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

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

*RestaurantLocations*

Wecurrently operate and franchise a total of fifty-two Good Times restaurants, ofwhich forty-eight are in Colorado, with forty-three in the Denver greatermetropolitan area, three in Colorado Springs, one in Grand Junction and one inSilverthorne. Eight 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 five in Colorado.

| ** **                              | **Total** | **Denver****, CO**

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

**Other** | **Idaho** | **Wyoming** | **North Dakota** |
|-----------------------------------------|-----------|---------------------------------------|-------------------------|-----------|-------------|------------------|
| Good  Times co-owned & co-developed | 27        | 24                                    | 3                       |           |             |                  |
| Good  Times franchised                  | 17        | 14                                    | 2                       | 1         |             |                  |
| Dual  brand co-owned                    | 3         | 3                                     |                         |           |             |                  |
| Dual  brand franchised                  | 5         | 2                                     |                         |           | 2           | 1                |
| **Total**                               | **52**    | **43**                                | **5**                   | **1**     | **2**       | **1**            |

|                                | **January** |
|--------------------------------|-------------|
|                                | **2008**    | **2009** |
| Company-owned restaurants      | 18          | 21 |
| Joint venture restaurants      | 9           | 9 |
| Franchise operated restaurants | 25          | 22 |
| **Total restaurants**          | **52**      | **52** |

*Fiscal 2008:* In January 2008 a North Dakota franchise terminated their Good Times franchise agreement in the dual brandconcept and stopped selling Good Times products in their two locations.  InMarch 2008 we purchased two Good Times restaurants from an existingfranchisee.  In June 2008 the Good Times franchisee operating at the University of Wyoming Food Court ceased operations when the contract to operate in the foodcourt expired.  There are no plans for this franchisee to operate in anotherlocation.

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

Thefollowing presents certain historical financial information of our operations. This financial information includes results for the three months ended December 31, 2007 and results for the three months ended December 31, 2008.

**Resultsof Operations**

*NetRevenues*

Netrevenues for the three months ended December 31, 2008 decreased $550,000 (8.9%) to $5,646,000 from $6,196,000 for the three months ended December 31, 2007.  Same store restaurant sales decreased $711,000 (14.8%) during the three monthsended December 31, 2008 for the restaurants that were open for the full periodsending December 31, 2008 and December 31, 2007.  Restaurants are included insame store sales after they have been open a full fifteen months and only GoodTimes restaurants are included with dual branded restaurants excluded. Restaurant sales increased $295,000 due to seven company-owned restaurants notincluded in same store sales. One was opened in late fiscal 2007, three aredual branded restaurants, two were purchased from a franchisee in March 2008and one opened in October 2008.  Restaurant sales decreased $112,000 due to onenon-traditional company-owned restaurant not included in same store sales.

Ourfirst quarter same store restaurant sales decline of 14.8% reflects the adverseimpact the macroeconomic environment is having on consumers' discretionaryspending and the proliferation of heavy promotion of $1 value menus anddiscounting by competitors.  Additionally, we are comparing the 2009 salesdecline to a same store sales increase of 11.6% in the same quarter of fiscal2008. We had shown same store sales growth in sixteen consecutive quartersleading into the third quarter of fiscal 2008. Our outlook for fiscal 2009remains cautious as the economic pressures may continue to impact consumerspending and we anticipate that we will continue to face increased competitivepricing pressure.

Whilewe are implementing several broad product and brand initiatives during fiscal2009 to improve our core value proposition, we are not planning to implement abroader $1 menu and our sales may be adversely affected during the economicrecession.

Franchise revenues decreased $22,000to $139,000 from $161,000 for the three months ended December 31, 2007 due to a decrease in franchise royalties of $35,000 off set by an increase infranchise fee income of $12,000. Same store Good Times franchise restaurantsales decreased 12.7% during the three months ended December 31, 2008 for the franchise restaurants that were open for the full periods ending December 31, 2008 and December 31, 2007.  Dual branded franchise restaurant sales decreased16.3% during the three months ended December 31, 2008, compared to the same prior year period, primarily due to the closure of two restaurants in January 2008.

*RestaurantOperating Costs*

Restaurantoperating costs as a percent of restaurant sales were 99.0% during the threemonths ended December 31, 2008 compared to 89.6% in the same prior year period.

Thechanges in restaurant-level costs are explained as follows:

| Restaurant-level  costs for the three month period ended December 31, 2007 | 89.6%                  |
|----------------------------------------------------------------------------|------------------------|
| Increase  in food and packaging costs                                      |  3.1%             |
| Increase  in payroll and other employee benefit costs                      |  2.2%             |
| Increase in  occupancy and other operating costs                           |  3.3%             |
| Increase in  depreciation and amortization                                 |     .6% |
| Increase  in new store opening costs                                       |     .3% |
| Decrease  in deferred rent                                                 |  (.1%)            |
| Restaurant-level  costs for the three month period ended December 31, 2008 | 99.0%                  |

* *

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*Food and Packaging Costs*

For the three months ended December 31, 2008our food and paper costs, increased $9,000 to $1,855,000 (33.7% of restaurantsales) from $1,846,000 (30.6% of restaurant sales) compared to the same prioryear period. We experiencedunprecedented increases in commodity costs during fiscal 2008 including beef,bakery, soft drinks, dairy and packaging costs with the majority of thoseincreases occurring in May through July 2008. Our weighted food and packagingcosts increased approximately 12% in the fiscal 2008 year. The cumulativeweighted menu price increases taken during fiscal 2008 were approximately4.8%.  We anticipate limited price increases in fiscal 2009 with more stablecommodity costs.

*Payroll**and Other Employee Benefit Costs*

Forthe three months ended December 31, 2008 our payroll and other employee benefitcosts decreased $64,000 to $2,065,000 (37.5% of restaurant sales) from $2,129,000(35.3% of restaurant sales) compared to the same prior year period.  The increase in payroll and otheremployee benefit expenses as a percent of restaurant sales is primarily theresult of lower restaurant sales. Becausepayroll costs are semi-variable in nature they increase as a percentage ofrestaurant sales when there is a decrease in store sales.  Additionally, our new restaurantoperated at a higher labor cost as a percent of sales due to higher initiallabor costs until it reaches mature staffing levels.

Thecurrent three month period ending December 31, 2008 includes two additional company-owned restaurants purchased from a franchisee in March 2008 and one newcompany-owned restaurant opened in October 2008, which represents $167,000 ofthe total costs in the current period.

Beginning in December 2008 we reduced ourlabor hours allocation through increased efficiencies and improved our salesper employee hour efficiencies on service hours, thereby eliminatingapproximately $190,000 of annual payroll costs. In addition, beginning in March2009 we anticipate further reductions in our employee and other benefit coststotaling approximately $300,000 in annual costs through the restructuring of regional supervision personnel along with other reductions in fixed employee benefit costs.

*Occupancy and Other Operating Costs*

For the three months ended December31, 2008 our occupancy and other operating costs increased $85,000 to $1,204,000(21.9% of restaurant sales) from $1,119,000 (18.5% of restaurant sales)compared to the same prior year period.  The current three month period ending December 31, 2008 includes two additional company-owned restaurants purchased from afranchisee in March 2008 andone new company-owned restaurant opened in October 2008, which represents $82,000 of theincrease compared to the same prior year period. Occupancy and other operatingcosts may increase as a percent of sales as new company-owned restaurants aredeveloped due to higher rent associated with sale-leaseback operating leases,as well as higher property taxes at those locations.

*OpeningCosts*

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

*Depreciationand Amortization*

For the three months ended December 31 , 2008, our depreciation and amortization increased $3,000 to $311,000 (5.6%of restaurant sales) from $308,000 (5.1% of restaurant sales) compared to thesame prior year period. The $3,000 increase in depreciation and amortizationfor the three months ended December 31, 2008 is due to $25,000 of depreciationexpense in the three acquired and new company-owned restaurants, offset bydeclining depreciation expense in our aging company-owned restaurants.

*Generaland Administrative Costs*

For the three months ended December 31, 2008, general and administrative costs decreased $66,000 to $489,000 (8.7% oftotal revenues) from $555,000 (9.0% of total revenues) for the same prior yearperiod.  The decrease in general and administrative costs compared to the sameprior year period is primarily attributable to decreases in: 1) payroll and employeebenefit costs of $33,000,  2) professional services of $17,000 and 3) trainingand recruiting costs of $22,000.

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We have reduced annualizedselling, general and administrative and franchise costs by approximately$450,000 for fiscal 2009, compared to fiscal 2008, through the elimination ofexecutive management positions, salary reductions and professional servicescosts.

*Advertising Costs*

Forthe three months ended December 31, 2008 advertising costs decreased $55,000 to$315,000 (5.7% of restaurant sales) from $370,000 (6.1% of restaurant sales)for the same prior year period.  The decrease in advertising costs is primarilydue to the decrease in restaurant sales, as contributions are made to the advertising materials fundand regional advertising cooperative based on a percentage of sales. Inaddition, $20,000 of payroll and employee benefit costs were eliminated in thecurrent year period when our Vice President of Marketing retired in November2008. We currently have no plans to fill the position in the immediate future.

*Franchise Costs*

For the three months ended December 31, 2008, franchise costs decreased $56,000 to $40,000 (.7% of total revenues) from $96,000 (1.6% oftotal revenues) for the same prior year period.  The decrease in franchise costsis primarily attributable to the reduction in payroll and employee benefitcosts related to the Vice President of Franchise Development position that waseliminated in July 2008 in conjunction with Good Times' exit from the planned Omaha, Nebraska expansion. We also incurred $13,000 in legal costs in the prior three monthperiod ended December 31, 2007 related to franchise registration filings.

*Lossfrom Operations*

Wehad a loss from operations of ($640,000) in the three months ended December 31, 2008 compared to a loss from operations of ($226,000) for the same prior yearperiod. The increase in loss from operations of $414,000 is due primarily tothe decrease in net revenues and by other matters discussed in the"Restaurant Operating Costs", "General and AdministrativeCosts" and "Franchise Costs" sections of Item 2.

*NetLoss*

Thenet loss was ($766,000) for the three months ended December 31, 2008 compared to a net loss of ($255,000) for the same prior year period. The change fromthe three month period ended December 31, 2007 to December 31, 2008 wasprimarily attributable to the increase in loss from operations for the threemonths ended December 31, 2008, as well as: 1) a decrease in minority interestexpense of $64,000 compared to the same prior year period; 2) an increase innet interest expense of $38,000 compared to the same prior year period; and 3)the current period includes a $119,000 unrealized loss related to our interestrate swap liability.

**Liquidityand Capital Resources**

*Cashand Working Capital*

Asof December 31, 2008, we had $786,000 cash and cash equivalents on hand. Wecurrently plan to use the cash balance and any cash generated from operationsfor our working capital needs in fiscal 2009. If we continue to experiencesignificant declines in our sales trends we will require additional workingcapital. We begin to compare to negative sales trends from the prior year inMarch 2009 and we expect our cash flow from operations to improve during thelast half of fiscal 2009 compared to the first half of fiscal 2009. We havepreviously announced our intent to raise up to $500,000 to increase our workingcapital.  As of the date of this filing we do not have any agreement in placefor any portion of that financing and there can be no assurance that suchfinancing will be completed.  

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As of December 31, 2008, we had a working capital deficit of $3,642,000 primarily from ourdevelopment line-of-credit of $2,500,000 shown as a current liability maturingin July 2009.  We have a fully-developed site that we are marketing for asale-leaseback transaction, the proceeds of which would be used to reduce theline of credit with PFGI II, LLC.  We are working with PFGI II, LLC to extendthe line of credit maturity for an additional year to July, 2010.  In addition,the entire note payable to Wells Fargo Bank, N.A. of $932,000 is shown as acurrent liability due to certain technical loan covenant defaults that exist asof December 31, 2008, which are described in Note 3  of the Condensed ConsolidatedFinancial Statements. As noted in Note 3 to the Condensed ConsolidatedFinancial Statements, we have received a Forbearance and Reservation of Rightsletter from Wells Fargo Bank, N.A. stating that they are accepting currentprincipal and interest payments and are not currently accelerating the note,subject to agreeing to an acceptable Required Corrective Action for thecovenant defaults.  It is unlikely that we will have an acceptable RequiredCorrective Action until our Earnings Before Interest Taxes and Depreciation("EBITDA") improves.

*FinancingActivities*

In May 2007 weborrowed $1,100,000 from Wells Fargo Bank under a note payable with an eightyear term with a floating interest rate at .50% below prime.  We simultaneouslyentered into an interest rate swap transaction with Wells Fargo Bank for thefull $1,100,000 with a fixed interest rate of 7.77% for the full eight yearterm coinciding with the note payable (see note 5 in item I. above). Asdiscussed above we are in default of certain technical loan covenants as of December 31, 2008 on this Wells Fargo note, however we are not currently and have neverbeen in payment default under the note.

On March 1, 2008, we purchased two restaurants from an existing franchisee for total consideration of$1,330,000.  We simultaneously sold the land, building and improvements relatedto one of the restaurants in a sale-leaseback transaction, the proceeds ofwhich were used for the purchase of the restaurants.  Net cash used in thepurchase transaction was $272,000.  After accounting for both the acquisitionand the sale-leaseback, assets of $490,000 were recorded, a deferred gain of$26,000 was recognized as a cost of the consideration and notes receivable duefrom the franchisee of $250,000 were forgiven.  We believe the $1,330,000represented the fair value of the franchisee acquired.

In July 2008, weentered into a $2,500,000 promissory note with an unrelated third party (PFGI II, LLC).  The promissory note constitutes a revolving line-of-credit for the development ofnew restaurants which may be advanced and repaid on a monthly basis from timeto time.  Prior to maturity, no principal payments are required and monthlypayments of interest only at the prime rate plus 2% (with a minimum rate of 8%)are due, with all unpaid principal due in July 2009.  The loan is secured byseparate leasehold deeds of trust and security agreements related to sixcompany-owned restaurants and a first deed of trust on the properties funded bythe line of credit. The total outstanding balance on the line of credit was$2,500,000 at December 31, 2008.  Of the $2,500,000 outstanding balance,$1,595,000 is related to the construction of one company-owned restaurant inFirestone, Colorado that opened in October 2008. The fully developed restaurantis currently being marketed in the sale-leaseback market.  The remainingbalance is related to the purchase, entitlement and other development fees on aparcel of land in Aurora, Colorado that will be either developed into acompany-owned restaurant or sold in fiscal 2009.

*CapitalExpenditures*

We do not have anyplans for any significant capital expenditures for the balance of fiscal 2009,other than normal recurring capital expenditures for existing restaurants. Additionalcommitments for the development of new restaurants in fiscal 2009 and beyondwill depend on the Company's sales trends, cash generated from operations andour access to additional capital.

*Cash Flows*

Netcash used in operating activities was $673,000 for the three months ended December 31, 2008. The net cash used in operating activities for the three months ended December31, 2008 was the result of a net loss of ($766,000) as well as cash andnon-cash reconciling items totaling $93,000 (comprised of depreciation andamortization of $311,000, an unrealized loss of $119,000 related to ourinterest rate swap liability, minority interest of $34,000, an accounts payabledecrease of $264,000 and a net decrease in other operating assets andliabilities of $39,000).

Net cash used in operating activitieswas $52,000 for the three months ended December 31, 2007.  The net cash used in operating activities for the three months ended December 31, 2007 was the resultof a net loss of ($255,000) as well as cash and non-cash reconciling itemstotaling $203,000 (comprised of depreciation and amortization of $308,000,minority interest of $32,000 and a net decrease in other operating assets andliabilities of $137,000).

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

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Netcash used in investing activities for the three months ended December 31, 2007was $71,000 which reflects payments of $95,000 for the purchase of property andequipment (including $31,000 for new store development, $27,000 for restaurantremodeling costs and $31,000 for miscellaneous restaurant related capitalexpenditures) and $24,000 in principal payments received on loans tofranchisees.

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

Net cash used in financing activitiesfor the three months ended December 31, 2007 was $816,000, which includesprincipal payments on notes payable and long term debt of $29,000; a repaymenton our revolving line of credit of $750,000; distributions to minority interestsin partnerships of $74,000; and paid in capital activity of $37,000 related tothe exercise of stock options.

*Contingencies*

We remain contingently liable on various landleases underlying restaurants that were previously sold to franchisees.  Wehave never experienced any losses related to these contingent leaseliabilities, however if a franchisee defaults on the payments under the leases,we would be liable for the lease payments as the assignor or sublessor of thelease.  Currently there are not any leases in default by the franchisees,however there can be no assurance that there will not be in the future, whichcould have a material effect on our future operating results.

**Impactof Inflation**

We experienced moderation in commoditycosts during fiscal 2005 and 2006 and significant increases in fiscal 2007 andfiscal 2008.  State increases in the minimum wage resulted in an increase inour average hourly wage of $.60 per employee hour during fiscal 2007 andapproximately $.23 per employee hour in fiscal 2008. It is anticipated that wewill take moderate price increases during fiscal 2009, which may or may not besufficient to recover increased commodity costs or increases in other operatingexpenses.

**Seasonality**

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

**ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Not required.

**ITEM 4T.           CONTROLS AND PROCEDURES**

**Conclusion Regardingthe Effectiveness of Disclosure Controls and Procedures**

Based on anevaluation of the Company's disclosure controls and procedures (as defined inRules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, asamended), as of the end of the period covered by this report on form 10Q, theCompany's Chief Executive Officer and Controller (its principal executiveofficer and principal financial officer, respectively) have concluded that theCompany's disclosure controls and procedures were effective.

**Changes in Internal Control overFinancial Reporting**

Therehave been no significant changes in the Company's internal control overfinancial reporting that occurred during the Company's fiscal quarter ended December 31,2008 that have materially affected, or are reasonably likely to materiallyaffect, the Company's internal control over financial reporting.

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**PARTII - OTHER INFORMATION**

Item 1.    Legal Proceedings

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

Item 1A. Risk Factors

      Not required.

Item 2.    UnregisteredSales of Equity Securities and Use of Proceeds

None.

Item 3.    Defaultsupon Senior Securities

Weare in default of certain technical loan covenants as of December 31, 2008 on our $932,000 note payable to Wells Fargo Bank, N.A. ("the Bank"). We have neverbeen in payment default on the note. On February 9, 2009 we received aReservation of Rights letter from the Bank formally notifying us of the defaultof the Earnings Before Interest Taxes and Depreciation ("EBITDA") CoverageRatio of not less than 1.5 to 1.0 and the Tangible Net Worth of not less than$5,000,000 as set forth in the Credit Agreement for the period ending December31, 2008. The letter serves as notice that notwithstanding the foregoing eventsof default, the Bank is reserving all of its rights and remedies under theCredit Agreement and related agreements. The Bank is not now accelerating theLoan and is willing to continue to accept regularly scheduled payments ofprincipal and interest under the Loan.

Item 4.    Submissionof Matters to a Vote of Security Holders

None.

Item 5.    OtherInformation

None.

Item 6.    Exhibits

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

      Exhibit No.                                    Description

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

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

*32.1     Certification of Chief ExecutiveOfficer and Controller pursuant to Section 906

*filed herewith

**SIGNATURES**

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

|                     | **GOOD TIMES RESTAURANTS INC.**                       |
|--------------------------|-------------------------------------------------------|
| DATE:  February 20, 2009 |                                                       |
|                          | /s/ Boyd E. Hoback                                    |
|                          | Boyd E. Hoback

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

Controller                          |

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