<PAGE>   1
                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549


                                  FORM 10-QSB

(Mark One)
[ X ]         QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                   SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1996
                               -------------------------------------------

[   ]         TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
                   EXCHANGE ACT


For the transition period from                    to
                              -------------------     --------------------

Commission file number  33-44654-C
                      ----------------------------------------------------

                  CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II
--------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

           Delaware                                     38-3019164
--------------------------------------------------------------------------
    (State or other jurisdiction                        (IRS Employer
    of incorporation or organization)                   Identification Number)


                24 Frank Lloyd Wright Drive, Lobby L, 4th Floor
                P.O. Box 544, Ann Arbor, Michigan 48106-0544
    ----------------------------------------------------------------------
                  (Address of principal executive offices)

                   (313) 994-5505
    ----------------------------------------------------------------------
                         (Issuer's telephone number)

                               Not Applicable
    ----------------------------------------------------------------------
 (Former name, former address and former fiscal year, if changed since last
  year)

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
                                                               ----     ----

               APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court.  Yes      No     .
                                                 ---     ---  

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:   Not Applicable
                                                    --------------   
Transitional Small Business Disclosure Format (check one)  Yes       No  X
                                                               ---      ---
<PAGE>   2


                   CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II

                              INDEX TO FORM 10-QSB



PART I     FINANCIAL INFORMATION                                        Page


Item 1.    Financial Statements                                            1

           Consolidated Balance Sheet, September 30, 1996                  2

           Consolidated Statement of Operations for the
           three month periods ended September 30, 1996 and 1995           3

           Consolidated Statement of Operations for the
           nine month periods ended September 30, 1996 and 1995            4

           Consolidated Statement of Cash Flows for the
           nine month periods ended September 30, 1996 and 1995            5

           Notes to Financial Statements                                   6

Item 2.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                      12


PART II    OTHER INFORMATION

Item 1.    Legal Proceedings                                              15

Item 2.    Changes in Securities                                          15

Item 3.    Defaults Upon Senior Securities                                15

Item 4.    Submission of Matters to a Vote of Security Holders            15

Item 5.    Other Information                                              15

Item 6.    Exhibits and Reports on Form 8-K                               15


SIGNATURES                                                                16


                                       i
<PAGE>   3


                   CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II

                         PART I - FINANCIAL INFORMATION

Item 1.    Financial Statements

     The consolidated balance sheet of Captec Franchise Capital Partners L.P.
II (the "Partnership") as of September 30, 1996 and the consolidated statements
of operations and cash flows for the periods ending September 30, 1996 and 1995
are unaudited and have not been examined by independent public accountants.  In
the opinion of the Management, these unaudited consolidated financial
statements contain all adjustments necessary to present fairly the financial
position and results of operations and cash flows of the Partnership for the
periods then ended.  All such adjustments are of a normal and recurring nature.

     These financial statements should be read in conjunction with the audited
consolidated financial statements and accompanying notes thereto included in
the Partnership's report on Form 10-KSB for the fiscal year ended December 31,
1995.

                                       1


<PAGE>   4

            CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                             September 30, 1996
                                 (Unaudited)


                                     ASSETS

<TABLE>
<S>                                                                 <C>
Cash                                                                $  105,346
Investment in leases:
  Operating leases, net                                              1,879,609
  Direct financing leases, net                                         371,980
Rent receivable                                                         33,552
Unbilled rent                                                          114,590
Due from related parties                                                 7,584
                                                                    ----------

Total assets                                                        $2,512,661
                                                                    ==========

                       LIABILITIES & PARTNERS' CAPITAL

Liabilities:
   Note payable                                                     $  753,683
   Accounts payable                                                        509
   Due to related parties                                                6,305
   Operating lease rents paid in advance                                    --
   Security deposits held on leases                                     19,081
                                                                    ----------

Total liabilities                                                      779,578
                                                                    ----------

Partners' Capital:
   Limited partners' capital accounts                                1,727,462
   General partner's capital accounts                                    5,621
                                                                    ----------

Total partners' capital                                              1,733,083
                                                                    ----------

Total liabilities & partners' capital                               $2,512,661
                                                                    ==========
</TABLE>



The accompanying notes are an integral part of the consolidated financial
statements.





                                      2
<PAGE>   5
            CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF OPERATIONS
         for the three month periods ended September 30, 1996 and 1995
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                                  1996         1995
<S>                                                             <C>          <C>
Operating revenue:
 Rental income                                                  $54,104      $71,507
 Finance income                                                  20,006       21,164
                                                                -------      -------
              Total operating revenue                            74,110       92,671
                                                                -------      -------

Operating costs and expenses:
 Depreciation                                                     7,118        7,118
 General and administrative                                       2,748        1,602
                                                                -------      -------

              Total operating costs and expenses                  9,866        8,720
                                                                -------      -------

              Income from operations                             64,244       83,951
                                                                -------      -------

Other Income (expense):
 Gain on sale of equipment                                        3,652            -
 Interest expense                                               (19,692)     (20,766)
 Other                                                               20        7,093
                                                                -------      -------

              Total other income, net                           (16,020)     (13,673)
                                                                -------      -------

Net income                                                       48,224       70,278

Net income allocable to general partners                            482          703
                                                                -------      -------

Net income allocable to limited partners                        $47,742      $69,575
                                                                =======      =======

Net income per limited partnership unit                         $ 12.30      $ 17.93
                                                                =======      =======

Weighted average number of limited partnership
 units outstanding                                                3,881        3,881
                                                                =======      =======
</TABLE>



The accompanying notes are an integral part of the consolidated financial
statements.



                                      3
<PAGE>   6
          CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF OPERATIONS
          for the nine month periods ended September 30, 1996 and 1995
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                    1996       1995
<S>                                               <C>       <C>
Operating revenue:
  Rental income                                   $197,119   $206,181
  Finance income                                    56,377     57,897
                                                  --------   --------

             Total operating revenue               253,496    264,078
                                                  --------   --------

Operating costs and expenses:
  Depreciation                                      21,355     21,344
  General and administrative                        12,980      7,696
                                                  --------   --------

             Total operating costs and expenses     34,335     29,040
                                                  --------   --------

             Income from operations                219,161    235,038
                                                  --------   --------

Other Income (expense):
  Gain on sale of equipment                          3,652          -
  Interest expense                                 (59,904)   (63,045)
  Other                                              1,099      7,093
                                                  --------   --------

             Total other income, net               (55,153)   (55,952)
                                                  --------   --------

Net income                                         164,008    179,086

Net income allocable to general partners             1,640      1,791
                                                  --------   --------

Net income allocable to limited partners          $162,368   $177,295
                                                  ========   ========

Net income per limited partnership unit           $  41.84   $  45.68
                                                  ========   ========

Weighted average number of limited partnership
 units outstanding                                   3,881      3,881
                                                  ========   ========
</TABLE>



The accompanying notes are an integral part of the consolidated financial
statements.






                                      4
<PAGE>   7
            CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF CASH FLOWS
          for the nine month periods ended September 30, 1996 and 1995
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                     1996       1995
<S>                                               <C>        <C>
Cash flows from operating activities:
 Net Income                                        $164,008   $179,086
 Adjustments to net income:
    Depreciation                                     21,355     21,344
    Increase in unbilled rent                       (44,700)   (15,808)
    Gain on sale of equipment                        (3,652)       -
    Decrease (increase) in receivables              (33,303)    26,085
    Increases in payables                             4,505      8,014
    Decrease in rental payments paid in advance     (13,500)       -
    Security deposits received (earned)             (24,050)    21,798
                                                   --------   --------

Net cash provided by operating activities            70,663    240,519
                                                   --------   --------

Cash flows from investing activities:
 Disposition (purchase) of real estate for
 operating leases                                       -      326,760
 Purchase of equipment for financing leases             -     (425,283)
 Proceeds from sale of equipment                      7,400        -  
 Reduction of net investment in financing leases    122,455     51,155
                                                   --------   --------

Net cash provided by investing activities           129,855    (47,368)
                                                   --------   --------

Cash flows from financing activities:
 Principal payments on note payable                 (32,085)   (28,944)
 Distributions to limited partners                 (181,500)  (175,200)
                                                   --------   --------

Net cash used in financing activities              (213,585)  (204,144)
                                                   --------   --------

Net increase in cash                                (13,067)   (10,993)

Cash, beginning of period                           118,413    136,984
                                                   --------   --------

Cash, end of period                                $105,346   $125,991
                                                   ========   ========
</TABLE>



The accompanying notes are an integral part of the consolidated financial
statements.



                                      5
<PAGE>   8


            CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES:

    Captec Franchise Capital Partners L.P. II (the "Partnership") is a Delaware
    limited partnership formed on November 19, 1991 for the purpose of
    acquiring income-producing commercial real properties and equipment leased
    on a "triple net" basis, primarily to operators of national and regional
    franchised business.  The Partnership includes a subsidiary, CFCP II, L.C.,
    a limited liability company, of which it owns 61.4%.  The general partners
    of the Partnership are Captec Franchise Capital Corporation II (the
    "Corporation"), a wholly owned subsidiary of Captec Financial Group, Inc.
    ("Captec") and Patrick L. Beach, an individual, herein after collectively
    referred to as the Sponsor.  Patrick L. Beach is also the Chairman of the
    Board of Directors, President and Chief Executive Officer of the
    Corporation and Captec.  The general partners have each contributed $100 in
    cash to the Partnership as a capital contribution.

    The Partnership commenced a public offering of limited partnership
    interests ("Units") on May 7, 1992.  A minimum of 2,300 Units and a maximum
    of 15,000 Units, priced at $500 per Unit, were offered on a "best efforts,
    part or none" basis.  The Partnership broke impound on April 4, 1994 and
    reached final funding on May 6, 1994.  At September 30, 1996, 3,881 Units
    were issued and outstanding.

    Due to the nature of the Partnership's business operations (acquiring,
    leasing and selling real properties) and other factors, in certain cases the
    financial activity is not directly comparable from year to year as the
    Partnership's revenue generating assets increase and decrease. Allocation of
    profits, losses and cash distributions from operations and cash
    distributions from sale or refinancing are made pursuant to the terms of the
    Partnership agreement. Profits and losses from operations will be allocated
    among the limited partners based upon the number of Units owned. In no event
    will the Sponsor be allocated less than 1% of profits and losses in any
    year.  

    Following is a summary of the Partnership's significant accounting policies:

    A.   RENTAL INCOME FROM OPERATING LEASES:   The Partnership's
         operating leases have scheduled rent increases which occur at various
         dates throughout the lease terms.  The Partnership recognizes the
         total rent, as stipulated by the lease agreement, as income on a
         straight-line basis over the term of each lease.  To the extent rental
         income on the straight-line basis exceeds rents billable per the lease
         agreement, an amount is recorded as unbilled rent.

    B.   LAND AND BUILDING ON OPERATING LEASES:   Land and buildings on
         operating leases are stated at cost.  Buildings are depreciated on the
         straight-line method over their estimated useful life (40 years).


                                       6


<PAGE>   9


           CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES, CONTINUED:

    C.   NET INVESTMENT IN DIRECT FINANCING LEASES:   Leasing operations
         classified as direct financing leases are stated as the sum of the
         minimum lease payments plus the unguaranteed residual value accruing
         to the benefit of the lessor, less unearned income.  Unearned income
         is amortized to income over the lease term so as to produce a constant
         periodic rate of return on the net investment in the lease.

    D.   NET INCOME PER LIMITED PARTNERSHIP INTEREST:   Net income per
         limited partnership interest is calculated using the weighted average
         number of limited partnership Units outstanding during the period and
         the limited partners' allocable share of the net income.

    E.   INCOME TAXES:   No provision for income taxes is included in the
         accompanying financial statements, as the Partnership's results of
         operations are passed through to the partners for inclusion in their
         respective income tax returns.

    F.   ESTIMATES:   The preparation of financial statements in
         conformity with generally accepted accounting principles requires
         management to make estimates and assumptions that affect the reported
         amounts of assets and liabilities and disclosure of contingent assets
         and liabilities at the date of the financial statements and the
         reported amounts of revenues and expenses during the reporting period.
         Actual results could differ from those estimates.


2.  DISTRIBUTIONS:

    Cash flows of the Partnership are allocated ninety-nine percent (99%) to
    the limited partners and one percent (1%) to the Sponsor, except that the
    Sponsor's share is subordinated to an eleven percent (11%) preferred return
    to the limited partners.  Net sale or refinancing proceeds of the
    Partnership will be allocated ninety percent (90%) to the limited partners
    and ten percent (10%) to the Sponsor, except that the Sponsor's share will
    be subordinated to a twelve percent (12%) preferred return plus return of
    the original capital contributions to the limited partners.  Distributions
    are paid quarterly in arrears approximately 15 days following the end of
    each calendar quarter.

    The Partnership distributed $59,500 during the three month period ended
    September 30, 1996, representing cash flow from operations for the quarter
    ended June 30, 1996.



                                       7


<PAGE>   10


            CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.  RELATED PARTY TRANSACTIONS AND AGREEMENTS:

    The Partnership has entered into an asset management agreement with the
    Sponsor and its affiliates whereby the Sponsor provides various property
    and equipment management services for the Partnership.  An acquisition fee
    is charged, not to exceed the lesser of five percent (5%) of the aggregate
    purchase price of properties and equipment or the customary charge by
    others rendering similar services.  No acquisition fees were paid by the
    Partnership during the three month period ended September 30, 1996.

    A subordinated asset management fee may be charged, in an amount equal to
    one percent (1%) of the gross rental revenues derived from the properties
    and equipment.  Payment of the asset management fee is subordinated to
    receipt by the limited partners of annual distributions equal to a
    cumulative noncompounded return of eleven percent (11%) per annum on their
    adjusted invested capital.  There were no subordinated asset management
    fees paid to the Sponsor during the three month period ended September 30,
    1996.

    An equipment liquidation fee limited to the lesser of three percent (3%) of
    the sales price or customary fees for similar services will be paid in
    conjunction with asset liquidation services.  There were no equipment
    liquidation fees paid during the three month period ended September 30,
    1996.

    The Partnership agreement provides for the Sponsor to receive a real estate
    liquidation fee limited to the lesser of three percent (3%) of the gross
    sales price or fifty percent (50%) of the customary real estate commissions
    in the event of a real estate liquidation.  This fee is payable only after
    the limited partners have received distributions equal to a cumulative,
    noncompounded return of twelve percent (12%) per annum on their adjusted
    invested capital plus distributions of sale or refinancing proceeds equal
    to 100% of their original contributions.

    The Partnership has agreed to indemnify the Sponsor and their affiliates
    against certain costs paid in settlement of claims which might be sustained
    by them in connection with the Partnership.  Such indemnification is
    limited to the assets of the Partnership and not the limited partners.



                                       8


<PAGE>   11


            CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.  LAND AND BUILDING ON OPERATING LEASES:

    The net investment in operating leases as of September 30, 1996 is
    comprised of the following:


       Land                                                    $  805,900
       Building and improvements                                1,138,902
                                                               ----------

                                                                1,944,802
       Less accumulated depreciation                              (65,193)
                                                               ----------

       Total                                                   $1,879,609
                                                               ==========

    The following is a schedule of future minimum lease payments to be received
    on the operating leases as of September 30, 1996:

       1996                                                    $   41,715
       1997                                                       169,779
       1998                                                       174,874
       1999                                                       180,125
       2000                                                       185,532
       Thereafter                                               3,099,507
                                                               ----------

       Total                                                   $3,851,532
                                                               ==========



5.  NET INVESTMENT IN DIRECT FINANCING LEASES:

    The net investment in direct financing leases as of September 30, 1996 is
    comprised of the following:


       Minimum lease payments to be received                   $  415,682
       Estimated residual value                                    47,307
                                                               ----------

       Gross investment in direct financing leases                462,989
       Less unearned income                                       (91,009)
                                                               ----------

       Net investment in direct financing leases               $  371,980
                                                               ==========



                                       9


<PAGE>   12


            CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5.  NET INVESTMENT IN DIRECT FINANCING LEASES, CONTINUED:

    The following is a schedule of future minimum lease payments to be received
    on the direct financing leases as of September 30, 1996:


       1996                                                 $ 27,770
       1997                                                  132,061
       1998                                                  132,061
       1999                                                  118,545
       2000                                                    5,245
                                                            --------

       Total                                                $415,682
                                                            ========



6.  JOINT VENTURE:

    In order to more fully utilize its capital, the Partnership entered into a
    joint venture with an affiliate of Captec to acquire one net leased real
    property.  As of September 30, 1996, the Partnership had invested
    approximately $491,000 in CFCP II, L.C., representing 61.4% ownership of
    the joint venture.

    The Partnership accounts for its investment in CFCP II, L.C. on a
    flow-through basis, whereby the Partnership's share of the assets and
    liabilities and income and expense of CFCP II, L.C. are reflected in the
    Partnership's financial statements.


7.  NOTE PAYABLE:

    The Partnership has a note payable to a financial institution with a
    principal balance as of September 30, 1996 of $753,683.  This note bears
    interest at a fixed rate of 10.35 percent per annum and is payable in equal
    monthly installments of $10,221 with a balloon payment for all remaining
    principal, approximately $603,000, due in October 1999.  This note is
    secured by a mortgage in the Partnership's two real estate investments
    which comprise its entire investment in operating leases.


                                       10


<PAGE>   13


            CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.  NOTE PAYABLE, CONTINUED:

    At June 30, 1996, annual maturities of the note payable are as follows:


     Year ending December 31:
      1996                                                    $ 11,258
      1997                                                      48,051
      1998                                                      53,261
      1999                                                     641,113
                                                              --------

      Total                                                   $753,683
                                                              ========



8.  SUBSEQUENT EVENT:

    In October 1996, the Partnership made a distribution to its limited
    partners totaling $112,000 which represented distribution of cash flow from
    operations in the amount of $50,000 and proceeds from the prepayment of an
    equipment lease by the lessee, Coastal Cuisine, Inc., in the amount of
    $62,000 for the quarter ended September  30, 1996.

                                       11


<PAGE>   14


                   CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II
                         PART I - FINANCIAL INFORMATION


Item 2.    Management's Discussion and Analysis of Financial Condition and 
           Results of Operations

Liquidity and Capital Resources:

     The  Partnership commenced the Offering of up to 15,000 limited
partnership units ("Units") registered under the Securities Act of 1933, as
amended by means of a Registration Statement which was declared effective by
the Securities and Exchange Commission on May 7, 1992.  The Partnership reached
final funding as of May 6, 1994 from the sale of 3,881 Units in the amount of
$1,940,500.  After payment of all offering expenses (including selling
commissions) totaling $252,265, net proceeds available for investment from the
sale of units totaled $1,688,235.  Proceeds from issuance of a note payable
equaled $831,000.  Therefore, the Partnership received net capital available
for investment totaling $2,519,235.

     As of September 30, 1996, the Partnership has fully invested all of its
capital available for investment.  This capital has been used to invest in two
net leased real estate properties (including land and building) in amounts
totaling $1,852,202 and four equipment leases in amounts totaling $547,069.  In
addition, in prior quarters, the Partnership paid affiliates acquisition fees
associated with the acquisition and leasing of these assets in amounts totaling
$119,954.  There were no new acquisition investments made during the three
month period ended September 30, 1996; however, one equipment lease was prepaid
by the lessee, resulting in prepayment proceeds of approximately $62,700 and
proceeds from the sale of the underlying equipment of $7,400.

     The Partnership believes that it has sufficient liquidity to maintain its
operations through cash reserves and cash flows from operations.  All of the
Partnership's leases provide for monthly rental payments to be paid to the
Partnership.  The form of lease used for both real estate and equipment is an
absolute net lease, which requires lessees to pay all taxes and assessments,
repairs and maintenance and insurance premiums, including casualty insurance.
As such, the Partnership does not anticipate incurring any expenses associated
with the operation of real estate properties or equipment.  Therefore,
management expects that its cash reserves and  the cash flow from leases will
be sufficient to pay installments on the note payable and other general and
administrative expenses, and further, to provide quarterly distributions to the
limited partners.

Results of Operations:

     For the three and nine month periods ended September 30, 1996, the
Partnership earned revenues totaling approximately $78,000 and $258,000,
respectively, compared to approximately $100,000 and $271,000 for the
corresponding periods of the preceding year.  The decrease in year-to-date
revenues over the prior year's period was due to the effects of the payoff of
the Coastal Cuisine equpment lease and the non-accrual of rents associated with
the delinquent lease to Kenny Rogers Roasters of Tampa Bay.


                                       12


<PAGE>   15


     For the three and nine month periods ended September 30, 1996, the
Partnership incurred expenses totaling approximately $30,000 and $94,000,
respectively, compared to $30,000 and $92,000 for the corresponding periods of
the preceding year.  On a comparative basis, there were no significant
fluctuations in expenses.

     For the three and nine month periods ended September 30, 1996, the
Partnership earned net income of approximately $48,000 and $164,000,
respectively, compared to approximately $70,000 and $179,000, for the
corresponding periods of the previous year.  The decrease in year-to-date net
income over the prior year's period was due to the effects of the payoff of the
Coastal Cuisine equipment lease and the non-accrual of rents associated with
the delinquent lease to Kenny Rogers Roasters of Tampa Bay.

     During the nine month period ended September 30, 1996, the Partnership
made distributions to the limited partners totaling $181,500, as compared with
$175,200 for the corresponding period of the preceding year.  In addition, in
October 1996, the Partnership made a distribution to its limited partners
totaling $112,000, which represented distribution of cash flow from operations
in the amount of $50,000 and the proceeds from the prepayment of the Coastal
Cuisine, Inc. equipment lease in the amount of $62,000, as compared with a
distribution of $60,500 for the corresponding period of the preceding year. The
decrease in distributions associated with operations is due to the decrease in
revenues discussed above.


Tenant Defaults

     The Partnership has invested in an operating lease under a joint venture
arrangement described in Note 6 to the consolidated financial statements
included herein.  The Partnership's net investment in the property underlying
this lease is $512,344.  The tenant under this lease, Kenny Rogers Roasters of
Tampa Bay, Inc., has defaulted on the lease agreement due to non-payment of
rents.  As of September 30, 1996, the Partnership is owed $35,654 of rents past
due from March 1, 1996 and forward, of which $19,803 have been accrued and
receivable by the Partnership.  The Partnership holds a $5,581 security deposit
which can be applied against these past due rents, at the Partnership's
discretion.  Presently, this default has caused the suspension of cash flows
from rents to the Partnership in an amount equal to $4,950 per month, which
amount represents 16.57% of the Partnership's aggregate current monthly rental
income.  The General Partners are unable to determine at this time whether any
of these past due rents will be recovered.

     The General Partners have been conducting ongoing discussions with the
tenant and with the franchisor and other franchisees in the Kenny Rogers
Roasters franchise system, as well as with other parties interested in the
property for operation of other restaurant and non-restaurant uses.  These
discussions have been focused on determining whether the tenant can cure the
default, and identifying alternate tenants that are interested in taking over
the operations of this restaurant or purchasing the property for conversion to
other concepts.

     To date, no agreements have been reached as a result of these discussions.
The General Partners believe that the property can be re-leased to new tenants
within a 3 to 6 month period, although such new lease may not provide for the
same amount of monthly rent as required under the existing lease.  Furthermore,
the General Partners will pursue the default remedy provisions under the lease,
to the extent that pursuing such remedies is determined to

                                       13


<PAGE>   16

be in the best interest of the Partnership, taking into account such factors as
the cost of any legal actions and the probability of recovery.  The General
Partners will continue to seek a resolution to this lease default and will
report any commitment or definitive agreement regarding this default.

     Additionally, the General Partners have obtained revised estimates of the
market value of the property from local real estate experts.  These estimates
have indicated that the current market value the Partnership's 61.4% share of
the property is equal to or greater than the Partnership's net investment in
the property.  Based upon this analysis, the General Partners believe that the
Partnership's net investment in this property is fairly stated.

     As previously reported, on July 25, 1995, Tropicana Taco Cabana Ltd., a
Texas limited partnership (the "Tenant") assumed the lease and operations of
the Taco Cabana Restaurant located at 3575 W. Tropicana, Las Vegas, Nevada (the
"Property").  The Tenant's managing general partner was Felix Steling, the
guarantor under the original lease between the Partnership and Red Line Taco
Seven, Ltd. (the "Guarantor").   After a year of operations, the Tenant was
unable to generate sufficient cash flow to cover the lease payments to the
Partnership.  Although all lease payments were current as of August 1, 1996,
negotiations began to resolve the imminent problem.  On September 5, 1996, the
Partnership and the Tenant entered into an agreement whereby the Partnership
took possession of the Property and the Tenant/Guarantor paid $325,000 to the
Partnership in settlement of all obligations.

     While the General Partners believe that the Property can be re-leased on
reasonable terms and is continuing its efforts to find a new tenant, there is
no assurance that it will be successful in the near future, and if a new tenant
is obtained, there is no assurance that the economic terms of those leases will
compare favorably with the defaulted lease.  The General Partners will continue
to seek a resolution to the lease default and will report any commitments or
definitive agreements regarding this default.

                                       14


<PAGE>   17


                   CAPTEC FRANCHISE CAPITAL PARTNERS L.P. II
                          PART II - OTHER INFORMATION


Item 1.  Legal Proceedings

         None

Item 2.  Changes in Securities

         None

Item 3.  Defaults Upon Senior Securities

         None

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

         None

Item 5.  Other Information

         None

Item 6.  Exhibits and Reports on Form 8-K

         Exhibit 27 - Financial Data Schedule

         No reports on the Form 8-K were filed for the three month period
         ending September 30, 1996.




                                      15
<PAGE>   18


                                   SIGNATURES



     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                BY: Captec Franchise Capital Corporation II
                                    Managing General Partner of
                                    Captec Franchise Capital Partners L.P. II



                                By: /s/  W. Ross Martin
                                   --------------------------------------------
                                    W. Ross Martin
                                    Chief Financial Officer and Vice President,
                                    a duly authorized officer

                                DATE:  November 13, 1996


                                       16

<PAGE>   19
                                EXHIBIT INDEX



Exhibit No.         Description                        Page No.
-----------         -----------                        --------
    27              Financial Data Schedule               12








                                      11