##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


FORM 10-Q


(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, 2004.

OR



|  |                                                                                             
|- | --------------------------------------------------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

For the transition period from

to
 .

Commission file no. 0-16190

DEL TACO RESTAURANT PROPERTIES II

a California limited partnership


(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|California                                                         |  | 33-0064245                                 
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification Number)
|                                                                  
|25521 Commercentre Drive, Lake Forest,
    California              |  | 92630                                      
|(Address of principal executive
    offices)                       |  | (Zip Code)                                 

(949) 462-9300

(Registrants telephone number, including
area code)


Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 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 o

Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange
Act.)  Yes o  No x



---






---



INDEX DEL TACO RESTAURANT PROPERTIES II PART I. FINANCIAL INFORMATION
    
    PAGE NUMBERItem 1. Financial StatementsCondensed Balance Sheets at September 30, 2004 and
December 31, 2003 (Unaudited)
    
    
    3Condensed Statements of Income for the three and nine months ended
September 30, 2004 and 2003 (Unaudited)
    
    
    4Condensed Statements of Cash Flows for the nine months ended
September 30, 2004 and 2003 (Unaudited)
    
    
    5Notes to Condensed Financial Statements (Unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    8Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    10Item 4. Controls and Procedures
    
    
    11PART II. OTHER INFORMATIONItem 6. Exhibits and Reports on Form 8-K
    
    
    12SIGNATURE
    
    
    13EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  -2-




---



##### Table of Contents



DEL TACO RESTAURANT PROPERTIES II CONDENSED BALANCE SHEETS (Unaudited) September 30,
    
    December 31,2004
    
    2003ASSETSCURRENT ASSETS:Cash
    
    $
    211,529
    
    
    $
    182,997Receivable from Del Taco, Inc.
    
    
    54,519
    
    
    
    54,854Deposits
    
    
    1,440
    
    
    
    1,295Total current assets
    
    
    267,488
    
    
    
    239,146PROPERTY AND EQUIPMENT:Land and improvements
    
    
    1,806,006
    
    
    
    1,806,006Buildings and improvements
    
    
    1,238,879
    
    
    
    1,238,879Machinery and equipment
    
    
    898,950
    
    
    
    898,9503,943,835
    
    
    
    3,943,835Lessaccumulated depreciation
    
    
    1,855,986
    
    
    
    1,815,3512,087,849
    
    
    
    2,128,484$
    2,355,337
    
    
    $
    2,367,630LIABILITIES AND PARTNERS EQUITYCURRENT LIABILITIES:Payable to limited partners
    
    $
    34,786
    
    
    $
    32,612Accounts payable
    
    
    13,524
    
    
    
    4,608Total current liabilities
    
    
    48,310
    
    
    
    37,220PARTNERS EQUITY:Limited partners; 27,006 units outstanding at September 30,
2004 and December 31, 2003
    
    
    2,333,006
    
    
    
    2,356,155General partner-Del Taco, Inc.
    
    
    (25,979
    )
    
    
    (25,745
    )2,307,027
    
    
    
    2,330,410$
    2,355,337
    
    
    $
    2,367,630
 See accompanying notes to condensed financial statements. -3-




---



##### Table of Contents



DEL TACO RESTAURANT PROPERTIES II CONDENSED STATEMENTS OF INCOME (Unaudited) Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003RENTAL REVENUES
    
    $
    173,189
    
    
    $
    157,114
    
    
    $
    498,226
    
    
    $
    448,133EXPENSES:General and administrative
    
    
    10,745
    
    
    
    9,744
    
    
    
    59,670
    
    
    
    59,386Depreciation
    
    
    13,545
    
    
    
    13,545
    
    
    
    40,635
    
    
    
    40,63524,290
    
    
    
    23,289
    
    
    
    100,305
    
    
    
    100,021Operating income
    
    
    148,899
    
    
    
    133,825
    
    
    
    397,921
    
    
    
    348,112OTHER INCOME:Interest
    
    
    424
    
    
    
    331
    
    
    
    1,224
    
    
    
    1,152Other
    
    
    200
    
    
    
    400
    
    
    
    1,400
    
    
    
    1,350Net income
    
    $
    149,523
    
    
    $
    134,556
    
    
    $
    400,545
    
    
    $
    350,614Net income per limited
partnership unit (note 2)
    
    $
    5.48
    
    
    $
    4.93
    
    
    $
    14.68
    
    
    $
    12.85Number of units used in computing
per unit amounts
    
    
    27,006
    
    
    
    27,006
    
    
    
    27,006
    
    
    
    27,006
 See accompanying notes to condensed financial statements. -4-




---



##### Table of Contents



DEL TACO RESTAURANT PROPERTIES II CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months EndedSeptember 30,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    400,545
    
    
    $
    350,614Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation
    
    
    40,635
    
    
    
    40,635Changes in operating assets and liabilities:Decrease (increase) in receivable from Del Taco, Inc.
    
    
    335
    
    
    
    (1,003
    )Increase in deposits
    
    
    (145
    )
    
    
    (176
    )Increase in accounts payable and payable
to limited partners
    
    
    11,090
    
    
    
    7,015Net cash provided by operating activities
    
    
    452,460
    
    
    
    397,085CASH FLOWS FROM FINANCING ACTIVITIES:Cash distributions to partners
    
    
    (423,928
    )
    
    
    (377,350
    )Net increase in cash
    
    
    28,532
    
    
    
    19,735Beginning cash balance
    
    
    182,997
    
    
    
    166,116Ending cash balance
    
    $
    211,529
    
    
    $
    185,851
 See accompanying notes to condensed financial statements. -5-




---



##### Table of Contents



DEL TACO RESTAURANT PROPERTIES II NOTES TO CONDENSED FINANCIAL STATEMENTS SEPTEMBER 30, 2004 (Unaudited) NOTE 1  BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements and
should therefore be read in conjunction with the financial statements and notes
thereto contained in the annual report on Form 10-K for the year ended December
31, 2003 for Del Taco Restaurant Properties II (the Partnership or the
Company). In the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary to present fairly the Partnerships financial
position at September 30, 2004, the results of operations for the three and
nine month periods ended September 30, 2004 and 2003 and cash flows for the
nine month periods ended September 30, 2004 and 2003 have been included.
Operating results for the three and nine months ended September 30, 2004 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2004. NOTE 2  NET INCOME PER LIMITED PARTNERSHIP UNIT Net income per limited partnership unit is based upon the weighted average
number of units outstanding during the periods presented which amounted to
27,006 in the periods presented. Pursuant to the partnership agreement, annual partnership income or loss is
allocated one percent to Del Taco, Inc. (Del Taco or the General Partner) and
99 percent to the limited partners. Partnership gains from any sale or
refinancing will be allocated one percent to the General Partner and 99 percent
to the limited partners until allocated gains and profits equal losses,
distributions and syndication costs previously allocated. Additional gains
will be allocated 15 percent to the General Partner and 85 percent to the
limited partners. -6-




---



##### Table of Contents



DEL TACO RESTAURANT PROPERTIES II NOTES TO CONDENSED FINANCIAL STATEMENTS  CONTINUED SEPTEMBER 30, 2004 (Unaudited) NOTE 3  LEASING ACTIVITIES The Partnership leases certain properties for operation of restaurants to Del
Taco on a triple net basis. The leases are for terms of 35 years commencing
with the completion of the restaurant facility located on each property and
require monthly rentals equal to 12 percent of the gross sales of the
restaurants. The leases terminate in the years 2021 to 2022. There is no
minimum rental under any of the leases. For the three months ended September 30, 2004, the five restaurants operated by
Del Taco, for which the Partnership is the lessor, had combined, unaudited
sales of $1,443,238 and unaudited net income of $128,405 as compared to
$1,309,283 and $97,980, respectively, for the corresponding period in 2003.
Net income by restaurant includes corporate charges for general and
administrative expenses incurred in connection with supervision of restaurant
operations and interest expense. For the nine months ended September 30, 2004, the five restaurants operated by
Del Taco, for which the Partnership is the lessor, had combined, unaudited
sales of $4,151,883 and unaudited net income of $345,524 as compared to
$3,734,444 and $298,248, respectively, for the corresponding period in 2003. NOTE 4  TRANSACTIONS WITH DEL TACO The receivable from Del Taco, Inc. consists primarily of rent accrued for the
month of September. The September rent was collected in October 2004. Del Taco serves in the capacity of general partner in other partnerships which
are engaged in the business of operating restaurants and three other
partnerships which were formed for the purpose of acquiring real property in
California for construction of Mexican-American restaurants for lease under
long-term agreements to Del Taco for operation under the Del Taco trade name. In addition, see Note 5 with respect to certain distributions to the General
Partner. NOTE 5  DISTRIBUTIONS On October 27, 2004, a distribution to the limited partners of $170,025 or
approximately $6.30 per limited partnership unit was approved. Such
distribution was paid on October 28, 2004. The General Partner also received a
distribution of $1,717 with respect to its 1% partnership interest. Total cash
distributions paid in January, April and July 2004 were $145,328, $125,637 and
$152,963, respectively. NOTE 6  PAYABLE TO LIMITED PARTNERS Payable to limited partners represents a reclassification from cash for
distribution checks to limited partners that have remained outstanding for 6
months or longer. -7-




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Del Taco Restaurant Properties II (the Partnership or the Company) offered
limited partnership units for sale between September 1984 and December 1985.
15% of the $6.751 million raised through sale of limited partnership units was
used to pay commissions to brokers and to reimburse Del Taco, Inc. (the General
Partner or Del Taco) for offering costs incurred. Approximately $5.6 million
of the remaining funds were used to acquire sites and build seven restaurants.
Two restaurants were sold in 1994. The five restaurants leased to Del Taco make up all of the income producing
assets of the Partnership. Therefore, the business of the Partnership is
entirely dependent on the success of the Del Taco trade name restaurants that
lease the properties. The success of the restaurants is dependent on a large
variety of factors, including, but not limited to, competition, consumer demand
and preference for fast food, in general, and for Mexican-American food in
particular. Results of Operations The Partnership owned seven properties that were under long-term lease to Del
Taco for restaurant operations. Two restaurants were sold in 1994 and five are
currently operating. The following table sets forth rental revenue earned by restaurant for the
three and nine months ended September 30, 2004 and 2003: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Bear Valley Rd., Victorville, CA
    
    $
    32,261
    
    
    $
    29,687
    
    
    $
    91,865
    
    
    $
    85,049West Valley Blvd., Colton, CA
    
    
    41,117
    
    
    
    37,683
    
    
    
    115,973
    
    
    
    107,262Palmdale Blvd., Palmdale, CA
    
    
    21,986
    
    
    
    20,597
    
    
    
    63,409
    
    
    
    56,594DeAnza Country Shopping Center, Pedley, CA
    
    
    33,260
    
    
    
    29,020
    
    
    
    96,433
    
    
    
    83,642Varner Road, Thousand Palms, CA
    
    
    44,565
    
    
    
    40,127
    
    
    
    130,546
    
    
    
    115,586Total
    
    $
    173,189
    
    
    $
    157,114
    
    
    $
    498,226
    
    
    $
    448,133
 The Partnership receives rental revenues equal to 12 percent of gross sales
from the restaurants. The Partnership earned rental revenue of $173,189 during
the three month period ended September 30, 2004, which represents an increase
of $16,075 from the corresponding period in 2003. The Partnership earned
rental revenue of $498,226 during the nine month period ended September 30,
2004, which represents an increase of $50,093 from the corresponding period in
2003. The changes in rental revenues between 2004 and 2003 are directly
attributable to changes in sales levels at the restaurants under lease. -8-




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations  continued The following table breaks down general and administrative expenses by type of
expense: Percentage of TotalGeneral & Administrative ExpenseThree Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Accounting fees
    
    
    57.66
    %
    
    
    40.65
    %
    
    
    67.63
    %
    
    
    65.51
    %Distribution of information
to Limited Partners
    
    
    42.34
    %
    
    
    59.35
    %
    
    
    32.37
    %
    
    
    34.49
    %100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
 General and administrative costs for the three month period ended September 30,
2004 increased from the corresponding period in the previous year due to
increased auditing and accounting costs partially offset by a decrease in
printing costs. General and administrative costs for the nine month period
ended September 30, 2004 were essentially the same as the corresponding period
in 2003 as a result of an increase in auditing and accounting costs that were
almost entirely offset by a reduction in printing costs. For the three month period ended September 30, 2004, net income increased
$14,967 from 2003 to 2004 due to the increase in revenues of $16,075, the
decrease in interest and other income of $107 and the $1,001 increase in
general and administrative expenses. For the nine month period ended September
30, 2004, net income increased by $49,931 from 2003 to 2004 due to an increase
in revenues of $50,093, the increase in interest and other income of $122 and
the increase in general and administrative expenses of $284. Recent Accounting Pronouncements In December 2003, the FASB issued FASB Interpretation No. 46 (revised December
2003), Consolidation of Variable Interest Entities, which addresses how a
business enterprise should evaluate whether it has a controlling financial
interest in an entity through means other than voting rights and accordingly
should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, which was issued in January 2003.
The Company is required to apply FIN 46R to variable interests in VIEs created
after December 31, 2003. For variable interests in VIEs created before January
1, 2004, the Interpretation will be applied beginning on January 1, 2005. For
any VIEs that must be consolidated under FIN 46R that were created before
January 1, 2004, the assets, liabilities and noncontrolling interests of the
VIE initially would be measured at their carrying amounts with any difference
between the net amount added to the balance sheet and any previously recognized
interest being recognized as the cumulative effect of an accounting change. If
determining the carrying amounts is not practicable, fair value at the date FIN
46R first applies may be used to measure the assets, liabilities and
noncontrolling interest of the VIE. The Company believes it has no variable
interest entities to which FIN 46R applies. -9-




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations  continued Critical Accounting Policies and Estimates Managements discussion and analysis of financial condition and results of
operations, as well as disclosures included elsewhere in this report on Form
10-Q are based upon the Partnerships financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses. The Partnership
believes the critical accounting policies that most impact the financial
statements are described below. A summary of the significant accounting
policies of the Partnership can be found in Note 1 to the Financial Statements
which is included in the Partnerships December 31, 2003 Form 10-K. Property and Equipment: Property and equipment is stated at cost.
Depreciation is computed using the straight-line method over estimated useful
lives which are 20 years for land improvements, 35 years for buildings and
improvements, and 10 years for machinery and equipment. The Partnership accounts for property and equipment in accordance with
Statement of Financial Accounting Standards No. (SFAS) 144, Accounting for the
Impairment or Disposal of Long Lived Assets. SFAS 144 requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of the asset may not be
recoverable. In evaluating long-lived assets held for use, an impairment loss
is recognized if the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying value of the asset. Once a
determination has been made that an impairment loss should be recognized for
long-lived assets, various assumptions and estimates are used to determine fair
value including, among others, estimated costs of construction and development,
recent sales of comparable properties and the opinions of fair value prepared
by independent real estate appraisers. Long-lived assets to be disposed of are
reported at the lower of carrying amount or fair value less cost to sell. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk. None. -10-




---



##### Table of Contents



Item 4. Controls and Procedures  (a)
    
    Evaluation of disclosure controls and procedures:As of the end of the period covered by this quarterly report, we
carried out an evaluation, under the supervision and with the
participation of the Companys management, including the
Companys Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure
controls and procedures. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company
required to be included in the Companys periodic Securities and
Exchange Commission filings.(b)
    
    Changes in internal controls:There were no significant changes in the Companys internal controls
over financial reporting that occurred during our most recent fiscal
quarter that materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.(c)
    
    Asset-Backed issuers:Not applicable -11-




---



##### Table of Contents



PART II. OTHER INFORMATION 
 Item 6. Exhibits and Reports on Form 8-K  (a)
    
    Exhibits 31.1 Kevin K. Moriartys Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Robert J. Terranos Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002  (b)
    
    ReportsNone. -12-




---



##### Table of Contents



SIGNATURE 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. DEL TACO RESTAURANT PROPERTIES II
(a California limited partnership)
RegistrantDel Taco, Inc.
General PartnerDate:
    
    November 12, 2004
    
    /s/ Robert J. TerranoRobert J. Terrano
Executive Vice President,
Chief Financial Officer
 -13-




---



##### Table of Contents



Exhibit Index Exhibit 31.1
    
    Kevin K. Moriartys Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 31.2
    
    Robert J. Terranos Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 32.1
    
    Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 -14-