General

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

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

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

We may also be negatively impacted by other factors common to the restaurant industry such as: changes in consumer tastes away from red meat and fried foods; increases in the cost of food, paper, labor, health care, workers' compensation or energy; inadequate number of hourly paid employees; and/or decreases in the availability of affordable capital resources. 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 fifty-two Good Times restaurants,
of which forty-eight are in Colorado, with forty-three in the Denver greater
metropolitan area, three in Colorado Springs, one in Grand Junction and one in
Silverthorne. Eight of these restaurants are "dual brand", operated pursuant to
a Dual Brand Test Agreement with Taco John's International, of which there is
one in North Dakota, two in Wyoming, and five in Colorado.

                                      Denver, CO   Colorado                  North
                               Total Greater Metro  Other   Idaho Wyoming   Dakota
Good Times co-owned &           27        24          3
co-developed
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 brand concept and stopped selling Good Times products in their two locations. In March 2008 we purchased two Good Times restaurants from an existing franchisee. In June 2008 the Good Times franchisee operating at the University of Wyoming Food Court ceased operations when the contract to operate in the food court expired. There are no plans for this franchisee to operate in another location.

Fiscal 2009: In October 2008 we opened one new company-owned restaurant in Firestone, Colorado. In December 2008 a Wyoming franchise terminated their Good Times franchise agreement in the dual 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.

The following 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.

Results of Operations

Net Revenues

Net revenues 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 months ended December 31, 2008 for the restaurants that were open for the full periods ending December 31, 2008 and December 31, 2007. Restaurants are included in same store sales after they have been open a full fifteen months and only Good Times restaurants are included with dual branded restaurants excluded. Restaurant sales increased $295,000 due to seven company-owned restaurants not included in same store sales. One was opened in late fiscal 2007, three are dual branded restaurants, two were purchased from a franchisee in March 2008 and one opened in October 2008. Restaurant sales decreased $112,000 due to one non-traditional company-owned restaurant not included in same store sales.

Our first quarter same store restaurant sales decline of 14.8% reflects the adverse impact the macroeconomic environment is having on consumers' discretionary spending and the proliferation of heavy promotion of $1 value menus and discounting by competitors. Additionally, we are comparing the 2009 sales decline to a same store sales increase of 11.6% in the same quarter of fiscal 2008. We had shown same store sales growth in sixteen consecutive quarters leading into the third quarter of fiscal 2008. Our outlook for fiscal 2009 remains cautious as the economic pressures may continue to impact consumer spending and we anticipate that we will continue to face increased competitive pricing pressure.

While we are implementing several broad product and brand initiatives during fiscal 2009 to improve our core value proposition, we are not planning to implement a broader $1 menu and our sales may be adversely affected during the economic recession.

Franchise revenues decreased $22,000 to $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 in franchise fee income of $12,000. Same store Good Times franchise restaurant sales 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 decreased 16.3% 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.

Restaurant Operating Costs

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

The changes 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%)

Food and Packaging Costs

For the three months ended December 31, 2008 our food and paper costs, increased $9,000 to $1,855,000 (33.7% of restaurant sales) from $1,846,000 (30.6% of restaurant sales) compared to the same prior year period. We experienced unprecedented increases in commodity costs during fiscal 2008 including beef, bakery, soft drinks, dairy and packaging costs with the majority of those increases occurring in May through July 2008. Our weighted food and packaging costs increased approximately 12% in the fiscal 2008 year. The cumulative weighted menu price increases taken during fiscal 2008 were approximately 4.8%. We anticipate limited price increases in fiscal 2009 with more stable commodity costs.

Payroll and Other Employee Benefit Costs

For the three months ended December 31, 2008 our payroll and other employee benefit costs 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 other employee benefit expenses as a percent of restaurant sales is primarily the result of lower restaurant sales. Because payroll costs are semi-variable in nature they increase as a percentage of restaurant sales when there is a decrease in store sales. Additionally, our new restaurant operated at a higher labor cost as a percent of sales due to higher initial labor costs until it reaches mature staffing levels.

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

Beginning in December 2008 we reduced our labor hours allocation through increased efficiencies and improved our sales per employee hour efficiencies on service hours, thereby eliminating approximately $190,000 of annual payroll costs. In addition, beginning in March 2009 we anticipate further reductions in our employee and other benefit costs totaling 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 December 31, 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 a franchisee in March 2008 and one new company-owned restaurant opened in October 2008, which represents $82,000 of the increase compared to the same prior year period. Occupancy and other operating costs may increase as a percent of sales as new company-owned restaurants are developed due to higher rent associated with sale-leaseback operating leases, as well as higher property taxes at those locations.

Opening Costs

For the 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 that opened in October 2008.

Depreciation and 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 the same prior year period. The $3,000 increase in depreciation and amortization for the three months ended December 31, 2008 is due to $25,000 of depreciation expense in the three acquired and new company-owned restaurants, offset by declining depreciation expense in our aging company-owned restaurants.

General and Administrative Costs

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

We have reduced annualized selling, general and administrative and franchise costs by approximately $450,000 for fiscal 2009, compared to fiscal 2008, through the elimination of executive management positions, salary reductions and professional services costs.

Advertising Costs

For the 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 primarily due to the decrease in restaurant sales, as contributions are made to the advertising materials fund and regional advertising cooperative based on a percentage of sales. In addition, $20,000 of payroll and employee benefit costs were eliminated in the current year period when our Vice President of Marketing retired in November 2008. 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% of total revenues) for the same prior year period. The decrease in franchise costs is primarily attributable to the reduction in payroll and employee benefit costs related to the Vice President of Franchise Development position that was eliminated 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 month period ended December 31, 2007 related to franchise registration filings.

Loss from Operations

We had 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 year period. The increase in loss from operations of $414,000 is due primarily to the decrease in net revenues and by other matters discussed in the "Restaurant Operating Costs", "General and Administrative Costs" and "Franchise Costs" sections of Item 2.

Net Loss

The net 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 from the three month period ended December 31, 2007 to December 31, 2008 was primarily attributable to the increase in loss from operations for the three months ended December 31, 2008, as well as: 1) a decrease in minority interest expense of $64,000 compared to the same prior year period; 2) an increase in net 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 interest rate swap liability.

Liquidity and Capital Resources

Cash and Working Capital

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

As of December 31, 2008, we had a working capital deficit of $3,642,000 primarily from our development line-of-credit of $2,500,000 shown as a current liability maturing in July 2009. We have a fully-developed site that we are marketing for a sale-leaseback transaction, the proceeds of which would be used to reduce the line of credit with PFGI II, LLC. We are working with PFGI II, LLC to extend the 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 a current liability due to certain technical loan covenant defaults that exist as of December 31, 2008, which are described in Note 3 of the Condensed Consolidated Financial Statements. As noted in Note 3 to the Condensed Consolidated Financial Statements, we have received a Forbearance and Reservation of Rights letter from Wells Fargo Bank, N.A. stating that they are accepting current principal and interest payments and are not currently accelerating the note, subject to agreeing to an acceptable Required Corrective Action for the covenant defaults. It is unlikely that we will have an acceptable Required Corrective Action until our Earnings Before Interest Taxes and Depreciation ("EBITDA") improves.

Financing Activities

In May 2007 we borrowed $1,100,000 from Wells Fargo Bank under a note payable with an eight year term with a floating interest rate at .50% below prime. We simultaneously entered into an interest rate swap transaction with Wells Fargo Bank for the full $1,100,000 with a fixed interest rate of 7.77% for the full eight year term coinciding with the note payable (see note 5 in item I. above). As discussed 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 never been 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 related to one of the restaurants in a sale-leaseback transaction, the proceeds of which were used for the purchase of the restaurants. Net cash used in the purchase transaction was $272,000. After accounting for both the acquisition and 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 due from the franchisee of $250,000 were forgiven. We believe the $1,330,000 represented the fair value of the franchisee acquired.

In July 2008, we entered 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 of new restaurants which may be advanced and repaid on a monthly basis from time to time. Prior to maturity, no principal payments are required and monthly payments 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 by separate leasehold deeds of trust and security agreements related to six company-owned restaurants and a first deed of trust on the properties funded by the 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 in Firestone, Colorado that opened in October 2008. The fully developed restaurant is currently being marketed in the sale-leaseback market. The remaining balance is related to the purchase, entitlement and other development fees on a parcel of land in Aurora, Colorado that will be either developed into a company-owned restaurant or sold in fiscal 2009.

Capital Expenditures

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

Cash Flows

Net cash 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 December 31, 2008 was the result of a net loss of ($766,000) as well as cash and non-cash reconciling items totaling $93,000 (comprised of depreciation and amortization of $311,000, an unrealized loss of $119,000 related to our interest rate swap liability, minority interest of $34,000, an accounts payable decrease of $264,000 and a net decrease in other operating assets and liabilities of $39,000).

Net cash used in operating activities was $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 result of a net loss of ($255,000) as well as cash and non-cash reconciling items totaling $203,000 (comprised of depreciation and amortization of $308,000, minority interest of $32,000 and a net decrease in other operating assets and liabilities of $137,000).

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

Net cash used in investing activities for the three months ended December 31, 2007 was $71,000 which reflects payments of $95,000 for the purchase of property and equipment (including $31,000 for new store development, $27,000 for restaurant remodeling costs and $31,000 for miscellaneous restaurant related capital expenditures) and $24,000 in principal payments received on loans to franchisees.

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

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

Contingencies

We remain contingently liable on various land leases underlying restaurants that were previously sold to franchisees. We have never experienced any losses related to these contingent lease liabilities, 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 the lease. 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, which could have a material effect on our future operating results.

Impact of Inflation

We experienced moderation in commodity costs during fiscal 2005 and 2006 and significant increases in fiscal 2007 and fiscal 2008. State increases in the minimum wage resulted in an increase in our average hourly wage of $.60 per employee hour during fiscal 2007 and approximately $.23 per employee hour in fiscal 2008. It is anticipated that we will take moderate price increases during fiscal 2009, which may or may not be sufficient to recover increased commodity costs or increases in other operating expenses.

Seasonality

Revenues of the Company are subject to seasonal fluctuation based primarily on weather conditions adversely affecting restaurant sales in December, January, February and March.