UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended: September 30, 2001

OR

( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from ________________ to __________________

Commission file number: 000-18590

(Exact name of small business issuer in its charter)

Nevada 84-1133368

(State or other jurisdiction of (I.R.S. Employer

incorporation or organization) Identification No.)

601 Corporate Circle, Golden, Colorado 80401

(Address of principal executive offices) (Zip Code)

Issuer's telephone number: (303) 384-1400

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

(Title of class)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB [X]

The issuer's revenues for its most recent fiscal year ended September 30, 2001 were $16,646,000.

As of December 14, 2001, the aggregate market value of the 1,168,967 shares of common stock held by non-affiliates of the issuer, based on the closing bid price of the common stock on December 14, 2001 of $2.46 per share as reported on the Nasdaq Smallcap Market, was $2,875,659.

As of December 14, 2001, the issuer had 2,252,030 shares of common stock outstanding.

The information required by Items 9 through 12 of Part III of this form is incorporated by reference from the issuer's definitive proxy statement to be filed with the SEC not later than 120 days after the end of the fiscal year covered by this form in connection with issuer's annual meeting of shareholders to be held on January 25, 2002.

Transitional Small Business Disclosure Format Yes [ ] No [X]

Good Times Restaurants Inc., a Nevada corporation (the "Company"), was organized in 1987. The Company is essentially a holding company for its wholly owned subsidiary, Good Times Drive Thru Inc., which is engaged in the business of developing, owning, operating and franchising hamburger-oriented drive-through restaurants under the name Good Times Drive Thru Burgers(SM). During 2001, the restaurants' brand name, trademark and logo were changed to Good Times Burgers & Frozen Custard to reflect a strategic repositioning of the Good Times concept. Most of the Company's restaurants are located in the Denver, Colorado metropolitan area. "Good Times" where used herein refers to the operations of Good Times Drive Thru Inc. and of the Company.

During fiscal 2001, we implemented a new frozen custard product line and strategically repositioned our brand name, logo, graphics and concept to Good Times Burgers & Frozen Custard. The initial results of the repositioning have significantly impacted sales trends with same store sales increases of 7% in August 2001, 12% in September 2001, 13.8% in October 2001 and 20% in November 2001. Twenty-nine of the company owned and franchised restaurants have installed the new product line, signage and graphics, and the installation for the remaining stores in our primary market is expected by January 2002. Radio and public relations support for the repositioning began in August 2001.

Also during fiscal 2001, the Company opened its 35^th restaurant in Brighton, Colorado and relocated one franchised restaurant to a new location.

In October 2000, Good Times Restaurants entered into a licensing agreement with the Winter Park Ski Resort in Colorado. Under the agreement, the Company receives license revenues for sales of its products by the resort at restaurant facilities at the base of the ski area, and is entering its second season at the resort. The agreement also provides for the option of future sales of the Company's products at other locations at the resort.

The Company currently operates and franchises a total of thirty-five Good Times restaurants, of which thirty-four are in Colorado, with thirty-one in the Denver greater metropolitan area, one in Grand Junction, one in Silverthorne, and one in Winter Park. There is one franchised Good Times restaurant in Boise, Idaho. Eleven of the restaurants are company-owned and nine are owned jointly with two separate co-development partners. Fifteen Good Times restaurants are franchised restaurants with ten operating in the Denver metropolitan area, one in Grand Junction, Colorado, one in Greeley, Colorado, one in Longmont, Colorado, one in Winter Park, Colorado, and one in Boise, Idaho. Good Times is also offering franchises for the development of additional Good Times restaurants.

Good Times was initially developed as a drive-through only, limited menu hamburger restaurant concept featuring high quality products and extremely fast service, with menu prices 30-40 percent lower than the major hamburger chains. The early price advantage has diminished due to continued aggressive price discounting by the major chains and the repositioning of Good Times' menu and pricing toward higher quality.

Over the last two fiscal years, the Company has positioned its business concept away from a price point focus to one based on developing strong differentiation in its core hamburger menu through:

• a more distinctive taste profile of its products,
• the fastest speed of service (as reported by third party research),
• a strong brand personality built through its advertising and employee service methods, and
• the highest quality ingredients in the hamburger quick service segment.

Additionally, in fiscal 2001 the Company introduced fresh frozen custard, not only as an additional product but as a strategic repositioning of the concept with another high quality product that will complement Good Times' reputation and historical focus on high quality hamburgers. The repositioning is targeted at broadening Good Times' consumer appeal and demographic base, increasing sales in the afternoon and evening dayparts with a new snack or treat occasion and creating a more highly differentiated brand for the consumer. The repositioning involved building remodeling, new equipment, new signage and new graphics on uniforms, packaging and promotional materials in fiscal 2001 and early fiscal 2002. The initial results of the repositioning have significantly impacted sales trends with same store sales increases over the prior year periods of 7% in August 2001, 12% in September 2001, 13.8% in October 2001 and 20% in November 2001.

Fresh frozen custard is a premium ice cream (requiring in excess of 10% butterfat content) with a proprietary vanilla blend that is prepared from highly specialized equipment that minimizes the amount of air that is added to the mix and that creates smaller ice crystals than other frozen dairy desserts. The custard is scooped similarly to hard-packed ice cream but is served at a slightly warmer temperature. The resulting product is smoother, creamier and thicker than typical soft serve or hard-packed ice cream products. Good Times serves the frozen custard in cups and cones, specialty sundaes and "Spoonbenders", a mix of custard and toppings, and we anticipate it will become a larger percentage of sales in fiscal 2002 and 2003.

The Company believes it has an advantage in providing a superior level of service and quality, but has been limited in its ability to effectively advertise and build awareness of its brand, compared to the other larger hamburger chains. The Company believes the repositioning undertaken in fiscal 2001 will provide more destination qualities for its brand and more unique product messages for its media advertising. Even though our advertising was limited to radio and on-site communications during the year, we were awarded ten prestigious awards from the Denver Advertising Federation for our advertising campaign.

The Company plans to develop additional double drive-through restaurants in Colorado, which is divided into two primary media markets Denver and Colorado Springs/Pueblo. Good Times' food preparation and service systems deliver a quality meal with a faster order-delivery response time providing the capacity to reach the same sales levels as traditional hamburger chains. Typically, a customer receives an order 30 to 60 seconds after their vehicle reaches the take-out window during peak order periods. The simplicity of the menu, the relatively low capital investment, and the efficient design of the building and equipment allow Good Times to sell its products at comparable or lower prices than the major fast food hamburger chains except during short term discount promotions by the competition. The relatively limited menu allows maximum attention to be devoted to food quality and speed of service.

The menu of a Good Times Burgers & Frozen Custard restaurant is limited to hamburgers, cheeseburgers, chicken sandwiches, french fries, onion rings, milkshakes, soft drinks and frozen custard products. Each menu item is made to order at the time the customer places the order and is not pre-prepared.

The hamburger patty is prepared with specially formulated and seasoned 100% USDA approved beef, served on a 4 1/4 inch sesame seed bun. Hamburgers and cheeseburgers are garnished with fresh lettuce, fresh sliced sweet red onions, mayonnaise, mustard, ketchup, pickles and fresh sliced tomato. The cheese is 100% pure sharp American, thickly sliced. Other specialty hamburger toppings include guacamole, bacon, and proprietary sauces. The chicken sandwiches include a spiced, battered whole muscle breast patty and a grilled spicy breast patty, both served with mayonnaise, lettuce and tomato. Equipment has been automated and equipped with compensating computers to deliver a consistent product and minimize the skills required of employees.

Fresh frozen custard is offered in cups, cones, waffle cones, specialty sundaes and "Spoonbenders", a blended combination of custard and various toppings. In addition to fresh vanilla frozen custard, management has developed several other proprietary flavors to be offered seasonally and on a rotating basis in fiscal 2002.

The existing double drive-through Good Times restaurants are less than one-third the size of the typical restaurant buildings of the four largest hamburger chains and require approximately one-half to two thirds of the land area. The current standard Good Times restaurant building is a double drive-through and walk-up style structure containing approximately 880 square feet built on 18,000 to 30,000 square-foot lots. Most existing restaurants utilize a double drive-through concept that allows simultaneous service from opposite sides of the restaurant and one or two walk-up windows with a patio for outdoor eating.

Management continually examines methods to refine the floor plan and design elements of the restaurant building to gain operating efficiencies and to enhance the look and feel of the dining area for customers. The Company has developed a new 2,300 square foot prototype building with a dining room and 70 seats and a 1,800 square foot building with 38 seats.

Management believes that the building form, design and aesthetic appeal address key issues and concerns of the consumer: speed, cleanliness, security, eye appeal, and an identifiable brand image. The exterior consists of a cream-colored dry-vit system with an enclosed glass vestibule at the front for walk-up service. A brightly lit multi-colored fascia band runs the length of both sides of the building in addition to product and Good Times proprietary signage. The double drive-through buildings are transportable and therefore can be moved from an unsuccessful site to a better location. Future buildings may be "stick built" on-site for greater cost efficiency, limiting our ability to relocate these stores.

Management performs extensive site evaluation and expects a minimum number of buildings will ever have to be moved. However, one Good Times unit was relocated from a development condemned under eminent domain proceedings in 1999 and one franchise-owned building was relocated to a new site in fiscal 2001.

The Company's primary objective for fiscal 2002 is to further reposition its business concept away from direct competition with the large national hamburger chains through the development and promotion of fresh frozen custard and highly differentiated taste profiles of its hamburgers. This repositioning is intended to build on the substantial brand equity that Good Times has in product quality and taste in its core menu of hamburgers and fries and to more definitively differentiate the Good Times brand and concept from the competition. Management has established the following criteria for the frozen custard product category for continued development in fiscal 2002:

• to add incremental sales in dayparts complementary to its primary lunch sales periods (afternoon and evening "snack" occasions),
• to improve cost of sales as a percentage of restaurant sales,
• to be highly unique within the quick service hamburger restaurant category,
• to broaden the demographic profile of Good Times' primary customer base to 18 - 54 years old from 18 - 34 years old, and
• to reduce the reliance on value, convenience and the "impulse buyer" as sales drivers and to increase customer patronage based on more original attributes of the menu offerings.

As of December 2001 only three restaurants in the Company's primary market have not yet completed the conversion to implement frozen custard due to delays in building permit approvals. Management anticipates that the remaining restaurants will have the repositioning fully implemented by January 2002.

The Company's other objectives for fiscal 2002 are to:

• accelerate the development of additional company-owned, joint-venture and franchised restaurants in Colorado,
• introduce limited new menu offerings, and
• advertise competitive price points for its products.

Good Times' ongoing objective is to increase average restaurant sales through increased customer counts in each primary daypart (lunch, dinner and late-night), selective menu and price promotions and effective marketing of Good Times' competitive attributes of high quality products, unique taste profiles and demonstrable value. The Company expects modest product price increases in 2002 due to anticipated higher hourly wages and commodity costs.

Colorado is divided into two primary media markets, Denver and Colorado Springs/Pueblo. The Company has plans to fully develop the Denver market and then develop the Colorado Springs/Pueblo market, depending on availability of financing and suitable restaurant sites. Management estimates that the Denver market will support 45-55 Good Times restaurants and the Colorado Springs/Pueblo market will support 8-12 restaurants. Media advertising is important to effectively build brand awareness and the repositioning of the concept. All of our growth for fiscal 2002 and 2003 will be focused in Colorado to increase media and supervision efficiencies.

As of December 14, 2001, the Company operated twenty company-owned and joint venture Good Times restaurants and had fourteen franchised restaurants open in Colorado and one in Boise, Idaho.

Management anticipates that Good Times and its franchisees will begin development of a total of five to ten Good Times units in the Denver ADI in 2002.

Good Times has defined three additional ingredients essential to its success:

• consistent delivery of high quality, great tasting products that are proprietary whenever possible,
• superior levels of friendly, fast service, and
• competitive pricing

The order system at each Good Times restaurant is equipped with an internal timing device that displays and records the time each order takes to prepare and deliver. The total transaction time for the delivery of food at the window is approximately 30 to 60 seconds during peak times.

Each Good Times unit employs a general manager, one to two assistant managers and approximately 15 to 25 employees, most of whom work part-time during three shifts. Operating systems and training materials are utilized to ensure consistent performance to Good Times' standards. An eight to ten week training program is utilized to train restaurant managers on all phases of the operation. Ongoing training is provided as necessary. Management of Good Times believes that incentive compensation of its restaurant managers is essential to the success of its business. Accordingly, in addition to a salary, managerial employees may be paid a bonus based upon proficiency in meeting financial, customer service and quality performance objectives.

The Company uses several sources of customer feedback to evaluate each restaurant's service and quality performance, including an extensive secret shopper program, customer comment phone line and web site comments. Additionally, management uses both its own primary consumer research for product development and customer usage and attitude patterns as well as third party market research that evaluates Good Times' performance ratings on several different operating attributes against key competitors.

The Company currently purchases 100% of its restaurant food and paper supplies from Yancey's Food Service. The Company does not believe that the current reliance on this sole vendor will have any long-term material adverse effect since the Company believes that there are a sufficient number of other suppliers from which food and paper supplies could be purchased. The Company does not anticipate any difficulty in continuing to obtain an adequate quantity of food and paper supplies of acceptable quality and at acceptable prices.

Financial and management control is maintained through the use of automated data processing and centralized accounting and management information systems that are provided by the Company. Restaurant managers forward sales reports, vendor invoices, payroll data and other operating information to Good Times' headquarters weekly and sales data is collected daily via an automated "polling' of each restaurant's point-of-sale system. Management receives daily, weekly and monthly reports identifying food, labor and operating expenses and other significant indicators of restaurant performance. Management of Good Times believes that these reporting systems enhance its ability to control and manage operations.

The marketing efforts of Good Times focus on building "brand awareness" of Good Times' attributes for the best tasting, unique products within the context of ad campaigns that build upon a brand personality that is irreverent and funny, combined with specific product messages. Fiscal 2000's advertising consisted primarily of television advertising and fiscal 2001's advertising consisted primarily of radio advertising with on-site and point of purchase merchandising. The radio advertising campaign had a consistent creative theme with the television advertising and provided more media weeks coverage than the television campaign. The 2001 campaign overall garnered ten awards for its creative execution.

Signage is one of the most important elements for establishing identity at each location. The Good Times restaurant sign package that has been developed offers flexibility based on local codes, site layout and surrounding property. The Company's signage, logos and graphics for 20 of the 35 restaurants were redone in fiscal 2001 to support the strategic repositioning of the brand to Good Times Burgers & Frozen Custard, with the remaining stores to be completed by January 2001.

Good Times has prepared prototype area rights and franchise agreements, a Uniform Franchise Offering Circular and advertising material to be utilized in soliciting prospective franchisees. Good Times seeks to attract franchisees that are experienced restaurant operators, well capitalized and have demonstrated the ability to develop multi-unit franchises. Good Times currently reviews sites selected for franchises and monitors performance of franchise units. Good Times is currently considering potential franchisees only for development of units in Colorado and anticipates developing an owner-operator franchise agreement in addition to its traditional franchise agreement.

Good Times estimates that it will cost a franchisee on average approximately $475,000 to $625,000 to open a Good Times double drive-through restaurant, including pre-opening costs and working capital, assuming the land is leased. A franchisee typically will pay a royalty of 4% of net sales, an advertising fee of at least 0.5% of net sales, plus participation in regional advertising up to 5% of net sales, or a higher amount approved by the advertising cooperative, and initial development and franchise fees totaling $20,000 per restaurant. Among the services and materials which Good Times provides to franchisees are site selection assistance, plans and specifications for construction of the Good Times Drive Thru restaurants, an operating manual which includes product specifications and quality control procedures, training, on-site pre-opening supervision and advice from time to time relating to operation of the franchised restaurant.

Good Times has entered into twelve franchise agreements in the Denver ADI. Twelve franchise restaurants and nine joint-venture restaurants are operating in the Denver ADI. One franchise restaurant is open in Grand Junction, Colorado, one in the Winter Park Resort and one franchise restaurant is open in Boise, Idaho.

At December 14, 2001, the Company had approximately 573 employees, including 300 full-time employees. The Company considers its employee relations to be good. None of its employees is covered by a collective bargaining agreement.

The restaurant industry, including the fast food segment, is highly competitive. Good Times competes with a large number of other hamburger-oriented fast food restaurants in the areas in which it operates. Many of these restaurants are owned and operated by regional and national restaurant chains, many of which have greater financial resources and experience than does the Company. Restaurant companies that currently compete with Good Times in the Denver market include McDonald's, Burger King, Wendy's and Carl's Jr. Double drive-through restaurant chains such as Rally's Hamburgers and Checker's Drive-In Restaurants, which currently operate a total of over 800 double drive-through restaurants in various markets in the United States, are not currently operating in Colorado. Management of Good Times believes that these double drive-through restaurant chains will not expand into Colorado based on their publicly reported objectives and resources. However, the Company cannot assure you that they will not enter the Colorado market and become significant competitors of Good Times.

Management of Good Times believes that it may have a competitive advantage in terms of quality of product and price-value compared to traditional fast food hamburger chains. However, price discounting by the major fast food hamburger chains has had a detrimental effect on Good Times' customer transactions in prior years. Early development of its double drive-through concept in Colorado has given Good Times an advantage over other double drive-through chains that may seek to expand into Colorado because of Good Times' brand awareness and present restaurant locations. Nevertheless, Good Times may be at a competitive disadvantage with other restaurant chains with greater name recognition and marketing capability. Furthermore, most of Good Times' competitors in the fast-food business operate more restaurants, have been established longer and have greater financial resources and name recognition than Good Times. There is also active competition for management personnel, as well as for attractive commercial real estate sites suitable for restaurants.

Good Times has registered its mark "Good Times! Drive Thru Burgers"(SM) with the State of Colorado and intends to register that mark in each state where it or a franchisee intends to open a restaurant and intends to register its new mark "Good Times Burgers & Frozen Custard" with the State of Colorado. Good Times currently relies solely on common law trademark protection and state registration, which will not protect it against a prior user of the same or a similar mark. If prior use is established, Good Times may not be able to use its mark in the geographic area of the prior use. While the mark is important to Good Times, unavailability of the mark in any particular geographic area into which it desires to expand operations may not necessarily preclude that expansion. However, name non-availability may preclude the economies and other advantages which may be available through nationwide or regional marketing and advertising.

In addition we own trademarks or service marks that have been registered, or for which applications are pending, with the United States Patent and Trademark Office including but not limited to: "Mighty Deluxe", "Wild Fries", "Chicken Dunkers" and "Spoonbender".

Each Good Times restaurant is subject to the regulations of various health, sanitation, safety and fire agencies in the jurisdiction in which the restaurant is located. Difficulties or failures in obtaining the required licenses or approvals could delay or prevent the opening of a new Good Times restaurant. Federal and state environmental regulations have not had a material effect on Good Times' operations. More stringent and varied requirements of local governmental bodies with respect to zoning, land use and environmental factors could delay or prevent development of new restaurants in particular locations. Good Times is subject to the Fair Labor Standards Act, which governs such matters as minimum wages, overtime, and other working conditions. In addition, Good Times is subject to the Americans With Disabilities Act, which requires restaurants and other facilities open to the public to provide for access and use of facilities by the handicapped. Management believes that Good Times is in compliance with the Americans With Disabilities Act.

Good Times is also subject to federal and state laws regulating franchise operations, which vary from registration and disclosure requirements in the offer and sale of franchises to the application of statutory standards regulating franchise relationships.

Certain statements in this Form 10-KSB under "Item 1. Description of Business," "Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Form 10-KSB constitute "forward-looking statements" within the meaning of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended. When we use the words such as "believes", "expects", "anticipates" or similar expressions, we are making forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors such as the risk factors discussed below which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements.

You should consider carefully the following risk factors before making an investment decision with respect to Good Times Restaurants securities.

We Have Accumulated Losses. We have incurred losses in every fiscal year since inception except 1999 and as of September 30, 2001 we had an accumulated deficit of $9,468,000. As of September 30, 2001, we had working capital deficit of $190,000.

We Must Sustain Same Store Sales Increases. As we develop additional restaurants, we expect that the increase in operating income generated by those restaurants will improve our financial results. However, we cannot assure you that we will achieve profitability on a consistent basis. We must sustain same store sales increases in existing restaurants to achieve profitability. Sales increases will depend in part on the success of our advertising and promotion of new and existing menu items and the consumer acceptance of the concept repositioning initiated in 2001. We cannot assure you that our advertising and promotional efforts will in fact be successful.

The Hamburger Restaurant Market Is Highly Competitive. The hamburger restaurant market is highly competitive. Our competitors include many recognized national and regional fast-food hamburger restaurant chains such as McDonald's, Burger King, Wendy's and Carl's Jr. We also compete with small regional and local hamburger and other fast-food restaurants, many of which feature drive-through service. Most of our competitors have greater financial resources, marketing programs and name recognition. All of the major hamburger chains have increasingly offered selected food items and combination meals at discounted prices and have recently intensified their promotions of value priced meals. Continued discounting by competitors may adversely affect the revenues and profitability of our restaurants.

Sites May Be Difficult To Acquire. Location of our restaurants in high-traffic and readily accessible areas is an important factor for our success. Drive-through restaurants require sites with specific characteristics and there are a limited number of suitable sites available in our geographic markets. Since suitable locations are in great demand, we may not be able to obtain optimal sites at a reasonable cost. In addition, we cannot assure you that the sites we do obtain will be successful.

We May Require Additional Financing. In order to fully develop the Denver and Colorado Springs/Pueblo markets and to expand into markets outside of Colorado, we will require additional financing. Although we have recently obtained debt facilities for the borrowing of additional capital, we cannot assure you that these facilities will adequately finance our planned developments or that additional financing will be available on reasonable terms.

We Depend on Key Management Employees. We believe our current operations and future success depend largely on the continued services of our management employees, in particular Boyd E. Hoback, our president and chief executive officer. Although we have entered into an employment agreement with Mr. Hoback, he may voluntarily terminate his employment with us at any time. In addition, we do not maintain key-person insurance on Mr. Hoback's life. The loss of Mr. Hoback's services, or other key management personnel, could have a material adverse effect on our financial condition and results of operations.

Our board of directors has adopted a shareholder rights plan, which is often referred to as a "poison pill." The plan makes it more difficult for a third party to acquire control of us without approval of the board of directors, even if the acquisition would be at a premium to the market price of our common stock. In addition, our articles of incorporation authorize the board of directors to issue without shareholder approval up to 5,000,000 shares of preferred stock. The issuance of preferred stock could make it more difficult for a third party to acquire us.

Our Nasdaq Listing Is Important. Our common stock is currently listed for trading on the Nasdaq SmallCap Market. The Nasdaq maintenance rules require among other things that our common stock price remain above $1.00 per share and that we have minimum net tangible assets in excess of $2 million. We were required to obtain shareholder approval in 1998 for a reverse stock split to maintain a sufficient per share price to preserve our Nasdaq listing.

You are cautioned that the risk factors discussed above are not exhaustive.

The Company currently leases approximately 3,350 square feet of space for its executive offices in Golden, Colorado for approximately $44,000 per year. The lease is on a month to month basis. The Company currently anticipates extending the lease at a competitive market rate. The space is leased from The Bailey Company, a significant stockholder of the Company, at their corporate headquarters.

As of December 14, 2001, Good Times has an ownership interest in twenty Good Times units, all of which are located in Colorado. Nine of these restaurants are held in joint venture limited partnerships of which Good Times is the general partner and has a 50% interest in eight of the partnership restaurants and a 78% interest in one partnership restaurant. There are eleven Good Times units that are wholly owned by Good Times.

Most existing Good Times restaurants are free-standing structures containing approximately 880 square feet (except for three conversions of other fast food restaurants that are 1,700-2,500 square feet, one conversion of a double drive-through building to one of 1,900 square feet with seating, one prototype 2,300 square foot building with seating and one prototype 1,800 square foot building with seating) situated on lots of approximately 18,000 to 30,000 square feet. The underlying land is subject to ground leases at all but one of these locations. Good Times intends to acquire new sites both through ground leases and purchase agreements supported by mortgage and leasehold financing arrangements.

All of the restaurants are regularly maintained by the Company's repair and maintenance staff as well as by outside contractors, when necessary. Management believes that all of its properties are in good condition and that there will not be a need for significant capital expenditures to maintain the operational and aesthetic integrity of the Company's properties for the foreseeable future, other than recurring maintenance and periodic capital improvements. All of the Company's properties are covered up to replacement cost under its insurance policies.

Item 3. Legal Proceedings.

The Company is not involved in any material legal proceedings. The Company is subject to various lawsuits in the normal course of business. These lawsuits are not expected to have a material impact to the Company.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended September 30, 2001.

Shares of Good Times Restaurants common stock are listed for trading on the Nasdaq Smallcap Market under the symbol "GTIM." The following table presents the quarterly high and low bid prices for Good Times Restaurants common stock as reported by the Nasdaq Smallcap Market for each quarter within the last two fiscal years. The quotations reflect interdealer prices, without retail mark-ups, markdowns or commissions and may not represent actual transactions.

As of December 14, 2001 there were approximately 363 holders of record of Common Stock. However management estimates that there are not fewer than 1,533 beneficial owners of the Company's Common Stock. The NASDAQ symbol for the Common Stock is "GTIM".

The Company has never paid dividends on its common stock and does not anticipate paying dividends in the foreseeable future. In addition, the Company has obtained financing under loan agreements that restrict the payment of dividends. The Company's ability to pay future dividends will necessarily depend on its earnings and financial condition. However, since restaurant development is capital intensive, the Company currently intends to retain any earnings for that purpose.

Item 6. Management's Discussion and Analysis of Financial Condition and Results

The following selected financial data is derived from the Company's historical financial statements and is qualified in its entirety by such financial statements which are included in Item 7 hereof.

The following presents certain historical financial information of the Company. This financial information includes the combined operations of the Company and Good Times for the fiscal years ended September 30, 2000 and 2001.

Net revenues for the fiscal year ended September 30, 2001 increased $1,840,000 (12.4%) to $16,646,000 from $14,806,000 for the fiscal year ended September 30, 2000. Restaurant sales increased $1,070,000 due to three new company-owned restaurants that opened in December 1999 and February and September 2000, and $414,000 due to one restaurant that was purchased from a franchisee in May 2000. Same store restaurant sales increased $253,000, or 1.95%, during fiscal 2001 for restaurants that were open for the full fiscal 2000 and 2001 periods. During the third and fourth quarters of fiscal 2001 company-operated stores were closed for a combined total of approximately eighteen days for remodeling associated with the implementation of frozen custard, with estimated lost sales of $50,000. Net revenues increased $102,000 due to an increase in franchise development fees and royalties from $294,000 in fiscal 2000 to $396,000 in fiscal 2001.

Total restaurant sales for Good Times and its franchisees were $26,376,000 for fiscal 2001 compared to $24,511,000 for fiscal 2000.

Average restaurant gross sales:

Food and paper costs for fiscal 2001 increased due to increased restaurant sales. Food and paper costs were 35.3% of restaurant sales for both fiscal 2001 and 2000. Commodity cost increases were offset by menu price increases therefore food and paper costs as a percent of restaurant sales remained the same.

For fiscal 2001 labor, occupancy and other expenses increased $1,016,000, from $6,489,000 (44.7% of restaurant sales) to $7,505,000 (46.2% of restaurant sales), compared to fiscal 2000. The increase in labor, occupancy and other expenses is attributable to:

• the expenses include $915,000 for three additional restaurants that opened in fiscal 2000 and one additional restaurant purchased from a franchisee in May 2000,

• an increase in the average wages for restaurant employees of approximately 8.6%,

• opening expenses of $54,000 due to the opening of one new restaurant and the remodeling of seventeen restaurants, and

• health insurance expense increased approximately $48,000 from fiscal 2000 primarily due to rising health care costs.

Labor, occupancy and other expenses increased as a percentage of restaurant sales in fiscal 2001 primarily due to the increase in wages for restaurant employees and the addition of new restaurants with lower average restaurant sales.

For fiscal 2001 depreciation and amortization expenses increased $114,000, from $796,000 to $910,000, compared to fiscal 2000. Depreciation expense increased $79,000 for the three new restaurants that opened in December 1999 and February and September 2000, as well as the restaurant purchased from a franchisee in May 2000. In addition, depreciation expense increased approximately $40,000 due to capital asset additions related to the frozen custard implementation.

For fiscal 2001 income from restaurant operations was $2,490,000 compared to $2,405,000 for fiscal 2000. Income from restaurant operations as a percentage of restaurant sales was 15.3% for fiscal 2001, a decrease from 16.6% for fiscal 2000. Cash flow from restaurant operations (income from restaurant operations plus depreciation, opening expenses and accretion of deferred rent) as a percentage of restaurant sales was 21.5% for fiscal 2001 compared to 23% for fiscal 2000.

The decrease in both income and cash flow from restaurants as a percentage of restaurant sales for fiscal 2001 was primarily a result of the increase in average wages for restaurant employees, the increase in health care costs and the addition of new restaurants with lower average restaurant sales. Income from restaurant operations reflect regional supervision, opening expenses and accretion of deferred rent of $375,000 for fiscal 2001 and $380,000 for fiscal 2000.

Selling, general and administrative expenses decreased from $2,296,000 (15.8% of restaurant sales) in fiscal 2000 to $2,092,000 (12.9% of restaurant sales) in fiscal 2001. The decrease in selling, general and administrative expenses is attributable to reduced advertising expenditures, which decreased advertising expense to $1,030,000 (6.3% of restaurant sales) for fiscal 2001 from $1,205,000 (8.3% of restaurant sales) for fiscal 2000. The reduction in advertising expenditures was a result of shifting from television advertising in fiscal 2000 to less expensive radio advertising in fiscal 2001

Management anticipates that fiscal 2001 advertising will consist primarily of radio advertising with on-site and point of purchase merchandising and will be approximately 6% of restaurant sales for fiscal 2002.

In 1995, the Company sold the Round The Corner Restaurants chain. In connection with the sale the Company remained a guarantor on one restaurant lease. Due to the Round The Corner Restaurants bankruptcy in 1996, the Company was required to perform on the guarantee. The restaurant has twelve months of remaining lease liability as of September 30, 2001.

Income from operations increased to $369,000 in fiscal 2001 compared to $91,000 in fiscal 2000. This increase was primarily attributable to the increase in income from restaurant operations and the decrease in selling, general and administrative expenses for fiscal 2001. These factors were partially offset by a $29,000 loss on the disposal of signage related to the implementation of frozen custard.

Net loss was ($81,000) for fiscal 2001 compared to a net loss of ($274,000) for fiscal 2000. The change from fiscal 2000 to fiscal 2001 was primarily attributable to the increase in income from operations for fiscal 2001, offset by an increase in net interest expense of $41,000 in fiscal 2001 due to an increase in debt and lease financing for the new company-owned stores opened during fiscal 2000 and the frozen custard implementation. In addition, minority interest expense increased $35,000 due to increased income from restaurant operations of the joint venture restaurants for fiscal 2001, and the Company had a $46,000 loss in 2001 from a store condemnation.

As of September 30, 2001, the Company had $1,400,000 of cash and liquid short-term investments on hand. The Company currently plans to use the cash balance and cash generated from operations for increasing the Company's working capital reserves and, along with additional debt financing, for the development of new company-owned and joint venture restaurants and reinvestment in existing restaurants for the implementation of frozen custard. Management believes that the current cash on hand and additional cash expected from operations in fiscal 2002 will be sufficient to cover the Company's working capital requirements for fiscal 2002.

As of September 30, 2001, the Company had a working capital deficit of $190,000. Because restaurant sales are collected in cash and accounts payable for food and paper products are paid two to four weeks later, restaurant companies often operate with working capital deficits. The Company anticipates that working capital deficits will be incurred in the future as new Good Times restaurants are opened.

The Company currently has commitments, net of financing, for capital expenditures related to the frozen custard implementation of approximately $175,000.

The Company currently does not have any material commitments for capital expenditures to develop new restaurants. However, management currently is negotiating for the acquisition of new sites for the development of new company-owned and franchise restaurants. The Company currently intends to obtain additional debt financing for the development of new company-owned restaurants.

In fiscal 2000 the Company entered into two commitment letters with a financial institution, which provides for a line of credit for the Company to borrow up to $1,850,000 in long-term financing for the development of five new Good Times Restaurants and the repayment of a $300,000 note payable. The balance outstanding under this line of credit was $715,000 at September 30, 2001. The line of credit requires monthly reductions of the outstanding balance in varying amounts, with any remaining balance due in 2007.

In fiscal 2001 the Company entered into a loan agreement with GE Capital, which provided for $1,200,000 in long term financing for the equipment, signage and building remodels related to the introduction of frozen custard in all company-owned and joint-venture restaurants. The balance outstanding under this note was $934,000 at September 30, 2001. The remaining $266,000 will be borrowed by the Company in the 1st quarter of fiscal 2002. Monthly payments of principal and interest of approximately $19,000 will be due beginning in December 2001 with the final payment due in November 2008.

Net cash provided by operating activities was $1,348,000 for fiscal 2001 compared to $560,000 in fiscal 2000. The increased net cash provided by operating activities for fiscal 2001 was the result of decrease in the net loss of ($81,000) and non-cash reconciling items totaling $1,429,000 (comprised principally of depreciation and amortization of $921,000, minority interest of $259,000 and increases in operating assets and liabilities totaling $249,000).

Net cash used in investing activities in fiscal 2001 was $1,553,000, which reflects payments for the purchase or property and equipment of $1,692,000. The Company uses cash in investing activities for capital expenditures consisting primarily of expenditures for the development of new Good Times restaurants and refurbishment of existing restaurants. In fiscal 2001 capital expenditures related to the implementation of frozen custard were $1,363,000.

Net cash used in investing activities in fiscal 2000 was $1,557,000, which reflects payments for the purchase of property and equipment of $1,585,000. In fiscal 2000 the Company developed three company-owned restaurants and purchased one restaurant from a franchisee.

Net cash provided by financing activities in fiscal 2001 was $280,000, which includes principal payments on notes payable and long term debt of $144,000, net repayments on lines of credit of $120,000, borrowings on notes payable and long term debt related to the implementation of frozen custard of $934,000, distributions to minority interests in partnerships of $423,000 and contributions from minority interests in partnerships of $33,000.

Net cash provided by financing activities in fiscal 2000 was $375,000, which includes principal payments on notes payable and long term debt of $410,000, borrowings on notes payable and long-term debt of $290,000, net borrowings on lines of credit of $835,000, distributions to minority interests in partnerships of $369,000 and contributions from minority interests in partnerships of $29,000.

The Company remains contingently liable on one Las Vegas restaurant lease that has been subleased, and one RTC restaurant lease that has been subleased. Management anticipates minimal future losses from the RTC or Las Vegas lease contingencies. The Company is also contingently liable on several ground leases that have been subleased or assigned to franchisees. The Company has never experienced any loses or anticipates any future leases from those contingent lease liabilities. The Company is also a guarantor on a Small Business Administration loan to a franchisee of approximately $333,000.

To the Stockholders and

Board of Directors

Good Times Restaurants, Inc.

Golden, Colorado

We have audited the accompanying consolidated balance sheet of Good Times Restaurants, Inc. and Subsidiary as of September 30, 2001, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended September;30, 2000 and 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Good Times Restaurants, Inc. and Subsidiary as of September 30, 2001, and the results of their operations and their cash flows for the years ended September 30, 2000 and 2001, in conformity with accounting principles generally accepted in the United States of America.

Hein + Associates LLP

Denver, Colorado

November 9, 2001

During the two most recent fiscal years, Good Times Restaurants has not had any changes in or disagreements with its independent accountants on matters of accounting or financial disclosure.

The information required by Items 9 through 12 of Part III is incorporated by reference from the Company's definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its Annual Meeting of Shareholders to be held on January 25, 2002.

Item 13. Exhibits and Reports on Form 8-K.

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

2. Reports on Form 8-K. There were no reports on Form 8-K filed by the registrant during the fourth quarter of the fiscal year ended September 30, 2001.

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

GOOD TIMES RESTAURANTS INC.

Date: December 14, 2001 By: /s/ Boyd E. Hoback, President and

Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.