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 &                     24          3
co-developed                    27
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

                                 April
                               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 and six months ended March 31, 2008 and results for the three and six months ended March 31, 2009.

Results of Operations

Net Revenues

Net revenues for the three months ended March 31, 2009 decreased $488,000 (8.1%) to $5,555,000 from $6,043,000 for the three months ended March 31, 2008. Same store restaurant sales decreased $655,000 (13.5%) during the three months ended March 31, 2009 for the restaurants that were open for the full periods ending March 31, 2009 and March 31, 2008. 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 $260,000 due to six company-owned restaurants not included in same store sales. Three are dual branded restaurants, two were purchased from a franchisee in March 2008 and one opened in October 2008. Restaurant sales decreased $68,000 due to one non-traditional company-owned restaurant not included in same store sales.

Net revenues for the six months ended March 31, 2009 decreased $1,039,000 (8.5%) to $11,201,000 from $12,240,000 for the six months ended March 31, 2008. Same store restaurant sales decreased $1,443,000 (14.5%) during the six months ended March 31, 2009 for the restaurants that were open for the full periods ending March 31, 2009 and March 31, 2008. 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 $633,000 due to six company-owned restaurants not included in same store sales. Three are dual branded restaurants, two were purchased from a franchisee in March 2008 and one opened in October 2008. Restaurant sales decreased $181,000 due to one non-traditional company-owned restaurant not included in same store sales.

Our same store restaurant sales declines of 14.8% and 13.5% for the first and second fiscal quarters, respectively, reflect 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 declines to same store sales increases of 11.6% and 7.6% in the first and second quarters of fiscal 2008, respectively. We also experienced a severe snow storm in March 2009, and we estimate that we lost approximately $100,000 in sales due to the storm. 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. However we begin to compare our same store sales to consistent prior year decreases in May 2009 and we expect the trend in sales comparisons to improve during the last six months of fiscal 2009.

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 $25,000 to $135,000 from $160,000 for the three months ended March 31, 2009 due to a decrease in franchise royalties. Same store Good Times franchise restaurant sales decreased 13.6% during the three months ended March 31, 2009 for the franchise restaurants that were open for the full periods ending March 31, 2009 and March 31, 2008. Dual branded franchise restaurant sales increased 9.1% during the three months ended March 31, 2009, compared to the same prior year period, primarily due to the opening of one new dual branded restaurant in December 2008.

Franchise revenues decreased $48,000 to $274,000 from $322,000 for the six months ended March 31, 2009 due to a decrease in franchise royalties of $60,000 offset by an increase in franchise fee income of $12,000. Same store Good Times franchise restaurant sales decreased 13.2% during the six months ended March 31, 2009 for the franchise restaurants that were open for the full periods ending March 31, 2009 and March 31, 2008. Dual branded franchise restaurant sales decreased 4.1% during the six months ended March 31, 2009, compared to the same prior year period, primarily due to the closure of two restaurants in January 2008, offset by the opening of one new dual branded restaurant in December 2008.

Restaurant Operating Costs

Restaurant operating costs as a percent of restaurant sales were 97.2% during the three months ended March 31, 2009 compared to 93.1% in the same prior year period and were 98.1% during six month period ended March 31, 2009 compared to 91.4% in the same prior year period.

The changes in restaurant-level costs are explained as follows:

                                                     Three Months     Six Months
                                                        Ended           Ended
                                                    March 31, 2009  March 31, 2009
Restaurant-level costs for the period ended March             93.1%          91.4%
31, 2008
Increase in food and packaging costs                           2.2%           2.6%
Increase (decrease) in payroll and other employee             (.3%)           1.0%
benefit costs
Increase in occupancy and other operating costs                1.9%           2.6%
Increase in depreciation and amortization                       .5%            .5%
Decrease in opening costs and deferred rent                   (.2%)             0%
Restaurant-level costs for the period ended March             97.2%          98.1%
31, 2009

Food and Packaging Costs

For the three months ended March 31, 2009 our food and paper costs, increased $25,000 to $1,804,000 (33.3% of restaurant sales) from $1,829,000 (31.1% of restaurant sales) compared to the same prior year period.

For the six months ended March 31, 2009 our food and paper costs, decreased $16,000 to $3,659,000 (33.5% of restaurant sales) from $3,675,000 (30.8% of restaurant sales) compared to the same prior year period.

We have implemented significant product portion and ingredient changes in the first six months of the current fiscal year to improve our overall value to the customer which has resulted in an approximate 1% increase in our food and paper costs as a percentage of restaurant sales.

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. During the first six months of fiscal 2009 we experienced a moderation in food and packaging cost increases. We took cumulative weighted menu price increases during fiscal 2008 of approximately 4.8% and in February 2009 we implemented a 1% weighted menu price increase. We anticipate moderate price increases for the balance of fiscal 2009 with more stable commodity costs.

Payroll and Other Employee Benefit Costs

For the three months ended March 31, 2009 our payroll and other employee benefit costs decreased $187,000 to $1,962,000 (36.2% of restaurant sales) from $2,149,000 (36.5% of restaurant sales) compared to the same prior year period.

For the six months ended March 31, 2009 our payroll and other employee benefit costs decreased $251,000 to $4,027,000 (36.9% of restaurant sales) from $4,278,000 (35.9% of restaurant sales) compared to the same prior year 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. These reductions led to the decrease in payroll and other employee benefit expenses as a percent of restaurant sales for the three months ended March 31, 2009. In addition, beginning in March 2009 we implemented 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.

The increase in payroll and other employee benefit expenses as a percent of restaurant sales for the six months ended March 31, 2009 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 that opened in October 2008 operated at a higher labor cost as a percent of sales due to higher initial labor costs until it reached mature staffing levels in January 2009.

The current three and six month periods ending March 31, 2009 include two additional company-owned restaurants purchased from a franchisee in March 2008 and one new company-owned restaurant opened in October 2008, that represent $108,000 and $276,000, respectively, of the total costs in the current periods.

Occupancy and Other Operating Costs

For the three months ended March 31, 2009 our occupancy and other operating costs increased $8,000 to $1,187,000 (21.9% of restaurant sales) from $1,179,000 (20% of restaurant sales) compared to the same prior year period.

For the six months ended March 31, 2009 our occupancy and other operating costs increased $94,000 to $2,391,000 (21.9% of restaurant sales) from $2,297,000 (19.3% of restaurant sales) compared to the same prior year period.

The current three and six month periods ending March 31, 2009 includes two additional company-owned restaurants purchased from a franchisee in March 2008 and one new company-owned restaurant opened in October 2008, that represent $65,000 and $147,000, respectively, of the increases compared to the same prior year periods. Additionally we experienced reductions in common area maintenance fees and personal property taxes compared to the same prior year periods. 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 March 31, 2009 and March 31, 2008 our new store opening costs were $0.

For the six months ended March 31, 2009 our new store opening costs were $15,000 compared to $0 for 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 March 31, 2009, our depreciation and amortization increased $2,000 to $316,000 (5.8% of restaurant sales) from $314,000 (5.3% of restaurant sales) compared to the same prior year period. The $2,000 increase in depreciation and amortization for the three months ended March 31, 2009 is due to $24,000 of depreciation expense in the three acquired and new company-owned restaurants, offset by declining depreciation expense in our aging company-owned restaurants.

For the six months ended March 31, 2009, our depreciation and amortization increased $4,000 to $627,000 (5.7% of restaurant sales) from $623,000 (5.2% of restaurant sales) compared to the same prior year period. The $4,000 increase in depreciation and amortization for the six months ended March 31, 2009 is due to $49,000 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 March 31, 2009, general and administrative costs decreased $82,000 to $402,000 (7.2% of total revenues) from $484,000 (8.0% of total revenues) for the same prior year period.

For the six months ended March 31, 2009, general and administrative costs decreased $148,000 to $891,000 (8.0% of total revenues) from $1,039,000 (8.5% of total revenues) for the same prior year period.

The decrease in general and administrative costs for the three months ended March 31, 2009 compared to the same prior year period is primarily attributable to decreases in: 1) payroll and employee benefit costs of $60,000, 2) incentive stock option compensation expense of $5,000 and 3) net reductions in various other fixed expenses of $17,000.

The decrease in general and administrative costs for the six months ended March 31, 2009 compared to the same prior year period is primarily attributable to decreases in: 1) payroll and employee benefit costs of $86,000, 2) incentive stock option compensation expense of $10,000, 3) training and recruiting costs of $23,000, 4) professional services costs of $19,000 and 5) net reductions in various other fixed expenses of $10,000.

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 March 31, 2009 advertising costs decreased $53,000 to $308,000 (5.7% of restaurant sales) from $361,000 (6.1% of restaurant sales) for the same prior year period.

For the six months ended March 31, 2009 advertising costs decreased $108,000 to $623,000 (5.7% of restaurant sales) from $731,000 (6.1% of restaurant sales) for the same prior year period.

The decrease in advertising costs for both the three and six month periods 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, $48,000 of payroll and employee benefit costs have been eliminated in the current six month 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 March 31, 2009, franchise costs decreased $58,000 to $33,000 (.6% of total revenues) from $91,000 (1.5% of total revenues) for the same prior year period.

For the six months ended March 31, 2009, franchise costs decreased $115,000 to $73,000 (.7% of total revenues) from $188,000 (1.5% of total revenues) for the same prior year period.

The decrease in franchise costs for both the three and six month periods 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 Midwest expansion. We also incurred $13,000 in legal costs in the prior six month period ended March 31, 2008 related to franchise registration filings.

Loss from Operations

We had a loss from operations of ($450,000) in the three months ended March 31, 2009 compared to a loss from operations of ($361,000) for the same prior year period.

We had a loss from operations of ($1,090,000) in the six months ended March 31, 2009 compared to a loss from operations of ($587,000) for the same prior year period.

The increase in loss from operations for both the three and six month periods 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 ($481,000) for the three months ended March 31, 2009 compared to a net loss of ($370,000) for the same prior year period. The change from the three month period ended March 31, 2008 to March 31, 2009 was primarily attributable to the increase in loss from operations for the three months ended March 31, 2009, as well as: 1) a decrease in minority interest expense of $39,000 compared to the same prior year period; and 2) an increase in net interest expense of $64,000 compared to the same prior year period, which is primarily related to the $2,500,000 PFGI II line of credit.

The net loss was ($1,247,000) for the six months ended March 31, 2009 compared to a net loss of ($625,000) for the same prior year period. The change from the six month period ended March 31, 2008 to March 31, 2009 was primarily attributable to the increase in loss from operations for the six months ended March 31, 2009, as well as: 1) a decrease in minority interest expense of $105,000 compared to the same prior year period; 2) an increase in net interest expense of $108,000 compared to the same prior year period; and 3) a $116,000 unrealized loss in the current period related to our interest rate swap liability.

Liquidity and Capital Resources

Cash and Working Capital

As of March 31, 2009, we had $601,000 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. However, we begin to compare to significant negative sales trends from the prior year in May 2009 and we expect our same store sales trends, cash flow from operations and liquidity to improve during the last half of fiscal 2009 compared to the first half of fiscal 2009. As reported on form 8-K filed on April 20, 2009 we have raised $185,000 of financing for additional working capital and extended the maturity of a $2,500,000 line of credit with PFGI II, LLC to July, 2010 (see "Subsequent Events" below). As a result, we currently do not anticipate the need for additional working capital during fiscal 2009, however there is no assurance that our sales and cash flow from operations will meet our projections.

As of March 31, 2009, we had a working capital deficit of $1,350,000 primarily because the entire note payable to Wells Fargo Bank, N.A. of $904,000 is shown as a current liability due to certain technical loan covenant defaults that exist as of March 31, 2009, 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 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. If Wells Fargo were to accelerate the note payable, we would need additional financing and we do not currently have a source for such financing. Additionally, we have recorded a $116,000 current liability related to the unrealized loss on our interest rate swap, as noted in Note 5 to the Condensed Consolidated Financial Statements.

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 March 31, 2009 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 acquired the assets of two restaurants from an existing franchisee for a total purchase price of $1,330,000, including the land, site improvements, building and equipment for one restaurant and site improvements, building and equipment on one restaurant. The purchase price was funded primarily from cash on hand of $272,000 and $849,000 in net proceeds from a simultaneous sale-leaseback transaction to a third party investor involving the land, building and improvements of one of the restaurants acquired.

As additional consideration and accounting in the acquisition, notes receivable from the franchisee of $250,000 were forgiven, and a deferred gain of $26,000 was written off. The deferred gain was related to a prior sale to the franchisee of one of the restaurants acquired. We did not record a gain or loss related to this acquisition. The financial results of the two restaurants have been included in our financial results from the acquisition date forward.

The acquisition of the two restaurants was accounted for using the purchase method as defined in SFAS No. 141, Business Combinations, (SFAS 141). The purchase price was allocated as follows:

Current assets net of current liabilities  $   14,000
Property and equipment                      1,316,000
Total purchase price                       $1,330,000

The sale-leaseback transaction was entered into simultaneously with the acquisition and involved selling the land, building and improvements of one of the acquired restaurants for net proceeds of $849,000. The sale-leaseback was the funding vehicle for the purchase of the two restaurants and was not used to raise cash for the company or increase our liquidity. The assets sold in the sale-leaseback transaction were never recorded in our financial statements as the long term lease entered into does not meet any of the criteria for a capital lease and therefore qualifies as an operating lease, as defined in SFAS No. 13, Accounting for Leases. After the sale-leaseback transaction was accounted for, it resulted in $476,000 in fixed assets and $14,000 in current assets recorded on the Company's financial statements. We believe the $476,000 represents the fair value of the net assets acquired (after completion of the simultaneous sale-leaseback transaction) consisting of furniture, fixtures and equipment in two restaurants and the site improvements and building in one restaurant.

In July 2008, we entered into a $2,500,000 promissory note with an unrelated third party (PFGI II, LLC) and amended that note on April 20, 2009 (see Subsequent Events below). 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 2010. The loan is secured by separate leasehold deeds of trust and security agreements related to six company-owned restaurants and first deeds of trust on two real properties funded by the line of credit. The total outstanding balance on the line of credit was $2,500,000 at March 31, 2009. 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 . . .