10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2006

OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to                  

Commission File Number: 0-16190

DEL TACO RESTAURANT PROPERTIES II

(A California limited partnership)

(Exact name of registrant as specified in its charter)

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

Registrant’s telephone number, including area code: (949) 462-9300

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes         No  X 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.     Yes         No  X 

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    

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Form S-11 Registration Statement filed July 10, 1984 are incorporated by reference into Part IV of this report.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer             Accelerated filer             Non-accelerated filer      X 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes         No  X 

TABLE OF CONTENTS

PART I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for the Partnership’s Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
	Item 9A. Controls and Procedures
	Item 9B. Other Information
PART III
	Item 10. Directors and Executive Officers
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Security Holder Matters
	Item 13. Certain Relationships and Related Transactions
	Item 14. Principal Accountant Fees and Services
PART IV
	Item 15. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

PART I

Item 1. Business

Del Taco Restaurant Properties II (the Partnership) is a publicly-held limited partnership organized under the California Uniform Limited Partnership Act. The Partnership’s General Partner is Del Taco LLC, a California limited liability company (Del Taco or the General Partner). The Partnership sold 27,006 units totaling $6.751 million through an offering of limited partnership units from September 1984 through December 1985. The term of the partnership agreement is until April 30, 2025, unless terminated earlier by means provided in the partnership agreement.

The business of the Partnership is ownership and leasing of restaurants in California to Del Taco. The Partnership acquired land and constructed seven Mexican-American restaurants for long-term lease to Del Taco. Two restaurants were sold in 1994. Each property is leased for 35 years on a triple net basis. Rent is equal to twelve percent of gross sales of the restaurants. As of December 31, 2006, the Partnership had a total of five properties leased to Del Taco.

The Partnership has no full time employees. The Partnership agreement assigns full authority for general management and supervision of the business affairs of the Partnership to the General Partner. The General Partner has a one percent interest in the profits or losses and distributions of the Partnership. Limited partners have no right to participate in the day to day management or conduct of the Partnership’s business affairs.

2

Item 2. Properties

The Partnership acquired seven properties with proceeds obtained from the sale of partnership units:

				Date of
		Date of	Restaurant	Commencement
Address	City, State	Acquisition	Constructed	of Operation (1)
Bear Valley Road	Victorville, CA	February 4, 1986	60 seat with drive through service window	June 13, 1986
West Valley Boulevard	Colton, CA	March 11, 1986	60 seat with drive through service window	June 24, 1986
Palmdale Boulevard	Palmdale, CA	December 12, 1986	60 seat with drive through service window	May 7, 1987
South Gate Town Center	South Gate, CA	January 28, 1987	60 seat with drive through service window	May 28, 1987 (2)
Main Avenue	Fallbrook, CA	March 10, 1987	60 seat with drive through service window	August 19, 1987 (3)
De Anza Country Shopping Center	Pedley, CA	April 13, 1987	60 seat with drive through service window	October 28, 1987
Varner Road	Thousand Palms, CA	October 14, 1987	60 seat with drive through service window	April 28, 1988

See also Schedule III – Real Estate and Accumulated Depreciation included in Item 8.

(1)	Commencement of operation is the first date Del Taco, as lessee, operated the facility on the site as a Del Taco restaurant.
(2)	In May 1994, the South Gate property was sold yielding net proceeds to the Partnership of $497,202.
(3)	In November 1994, the Fallbrook property was sold yielding net proceeds to the Partnership of $357,531.

Item 3. Legal Proceedings

The Partnership is not a party to any material pending legal proceedings.

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

None.

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PART II

Item 5. Market for the Partnership’s Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities

The Partnership sold 27,006 ($6,751,500) limited partnership units during the public offering period ended December 31, 1985 and currently has 1,018 limited partners of record. There is no public market for the trading of the units. Distributions made by the Partnership to the limited partners during the past three fiscal years are described in Note 6 to the Notes to the Financial Statements contained under Item 8.

Item 6. Selected Financial Data

The selected financial data presented as of and for the years ended December 31, 2006, 2005, 2004, 2003, and 2002, has been derived from the audited financial statements and should be read in conjunction with the financial statements and related notes and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	Years ended December 31,
	2006		2005		2004		2003		2002
Rental revenues	$	631,571	$	690,925	$	665,398	$	609,969	$	594,685
General and administrative expense		73,986		73,237		71,316		71,175		56,748
Depreciation expense		54,180		54,180		54,180		54,180		54,180
Interest and other income		4,584		4,471		3,418		2,921		3,314
Net income		507,989		567,979		543,320		487,535		487,071
Net income per limited partnership unit		18.62		20.82		19.92		17.87		17.86
Cash distributions per limited partnership unit		21.58		22.60		21.84		19.26		19.77
Total assets		2,206,089		2,276,807		2,330,405		2,367,630		2,398,716
Long-term obligations		—		—		—		—		—

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of financial condition, results of operations, liquidity and capital resources, and off balance sheet arrangements and contractual obligations contained within this report on Form 10-K is more clearly understood when read in conjunction with the notes to the financial statements.

4

The notes to the financial statements elaborate on certain terms that are used throughout this discussion and provide information about the Partnership and the basis of presentation used in this report on Form 10-K.

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 Del Taco as the operator of the restaurants located at our properties. The success of the restaurants is dependent on a large variety of factors, including, but not limited to, consumer demand and preference for fast food, in general, and for Mexican-American food in particular.

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. In total, $6.751 million was raised through the sale of limited partnership units and used to acquire sites, build seven restaurants, pay commissions to brokers and to reimburse Del Taco LLC (the General Partner or Del Taco) for offering costs incurred. Two restaurants were sold in 1994.

The Partnership’s only source of cash flow is rental income from the properties from the triple net leases. Such operating income has historically been and is expected to continue to be sufficient to fund the Partnership’s operating expenses. Net cash provided by operating activities in excess of the Partnership’s ongoing needs is distributed to the partners.

Off Balance Sheet Arrangements and Contractual Obligations

None.

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.

5

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)

Results of Operations – (Continued)

The following table sets forth rental revenues earned by restaurant by year:

	Years Ended December 31,
	2006		2005		2004
Bear Valley Rd., Victorville, CA	$	113,030	$	125,338	$	123,424
West Valley Blvd., Colton, CA		139,412		158,485		155,026
Palmdale Blvd., Palmdale, CA		77,025		83,906		83,539
DeAnza Country Shopping Center, Pedley, CA		140,832		136,319		128,722
Varner Road, Thousand Palms, CA		161,272		186,877		174,687
Total	$	631,571	$	690,925	$	665,398

The Partnership earns rental revenues equal to 12 percent of gross sales from the restaurants. The Partnership earned rental revenues of $631,571 during the year ended December 31, 2006, which represents a decrease of $59,354 from 2005. The decrease in rental revenues was caused by a decrease in sales at the restaurants under lease due to local competitive and industry factors.

The Partnership earned rental revenues of $690,925 during the year ended December 31, 2005, which represents an increase of $25,527 from 2004. The increase in rental revenues was caused by an increase in sales at the restaurants under lease.

The following table breaks down general and administrative expenses by type of expense:

Percentage of Total General and Administrative Expense

	Years Ended December 31,
	2006			2005			2004
Accounting fees		59.55	%		56.50	%		55.79	%
Distribution of information to limited partners		39.16			42.20			42.55
Other		1.29			1.29			1.66
		100.00			100.00			100.00

General and administrative costs increased by $749 from 2005 to 2006. The increase was caused primarily by increased costs for annual audit fees, partially offset by decreased costs for printing and mailing costs.

General and administrative costs increased by $1,921 from 2004 to 2005. The increase was caused primarily by increased costs for annual audit and accounting software licensing fees, partially offset by decreased costs for printing and mailing costs.

6

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued)

Results of Operations – (Continued)

Depreciation expense was the same in 2006, 2005, and 2004.

Net income decreased by $59,990 from 2005 to 2006 due to the decrease in revenues of $59,354 and the $749 increase in general and administrative expenses, offset by the increase in other income of $113.

Net income increased by $24,659 from 2004 to 2005 due to the increases in revenues of $25,527 and other income of $1,053 offset by the $1,921 increase in general and administrative expenses.

Recent Accounting Pronouncements

None that applies to the Partnership.

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-K 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 Item 8 of this Form 10-K.

7

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued)

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, 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 7A. Quantitative and Qualitative Disclosures About Market Risk.

None.

8

Item 8. Financial Statements

PART I. INFORMATION

INDEX	PAGE NUMBER
Report of Independent Registered Public Accounting Firm – Squar, Milner, Peterson, Miranda & Williamson, LLP		10
Report of Independent Registered Public Accounting Firm – KPMG LLP		11
Balance Sheets at December 31, 2006 and 2005		12
Statements of Income for the years ended December 31, 2006, 2005 and 2004		13
Statements of Partners’ Equity for the years ended December 31, 2006, 2005 and 2004		14
Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004		15
Notes to Financial Statements		16-20
Schedule III — Real Estate and Accumulated Depreciation		26

9

Report of Independent Registered Public Accounting Firm

To the Partners of
Del Taco Restaurant Properties II:

We have audited the accompanying balance sheets of Del Taco Restaurant Properties II (a California Limited Partnership) as of December 31, 2006 and 2005, and the related statements of income, partners’ equity, and cash flows for the years then ended. In connection with our audits of the financial statements, we have also audited the 2006 and 2005 information in the accompanying financial statement schedule listed in item 15. These financial statements and financial statement schedule are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Del Taco Restaurant Properties II as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the 2006 and 2005 information in the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ Squar, Milner, Peterson, Miranda & Williamson, LLP

Newport Beach, California

February 14, 2007

10

Report of Independent Registered Public Accounting Firm

To the Partners of
Del Taco Restaurant Properties II:

We have audited the accompanying statements of income, partners’ equity and cash flows of Del Taco Restaurant Properties II for the year ended December 31, 2004. In connection with our audit of the financial statements, we have also audited the 2004 information in the accompanying financial statement schedule. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Del Taco Restaurant Properties II for the year ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the 2004 information in the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

Costa Mesa, California
March 4, 2005

11

DEL TACO RESTAURANT PROPERTIES II

BALANCE SHEETS

	December 31,
	2006			2005
ASSETS
CURRENT ASSETS:
Cash	$	189,410		$	198,980
Receivable from Del Taco LLC		49,049			56,703
Deposits		1,686			1,000
Total current assets		240,145			256,683
PROPERTY AND EQUIPMENT:
Land and improvements		1,806,006			1,806,006
Buildings and improvements		1,238,879			1,238,879
Machinery and equipment		898,950			898,950
		3,943,835			3,943,835
Less—accumulated depreciation		1,977,891			1,923,711
		1,965,944			2,020,124
	$	2,206,089		$	2,276,807
LIABILITIES AND PARTNERS’ EQUITY
CURRENT LIABILITIES:
Payable to limited partners	$	42,160		$	36,815
Accounts payable		15,112			10,511
Total current liabilities		57,272			47,326
PARTNERS’ EQUITY:
Limited partners; 27,006 units outstanding at December 31, 2006 and December 31, 2005		2,176,379			2,256,236
General partner-Del Taco LLC		(27,562	)		(26,755	)
		2,148,817			2,229,481
	$	2,206,089		$	2,276,807

See accompanying notes to financial statements.

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DEL TACO RESTAURANT PROPERTIES II

STATEMENTS OF INCOME

	Years Ended December 31,
	2006		2005		2004
RENTAL REVENUES	$	631,571	$	690,925	$	665,398
EXPENSES:
General and administrative		73,986		73,237		71,316
Depreciation		54,180		54,180		54,180
		128,166		127,417		125,496
Operating income		503,405		563,508		539,902
OTHER INCOME:
Interest		3,334		2,471		1,793
Other		1,250		2,000		1,625
Net income	$	507,989	$	567,979	$	543,320
Net income per limited partnership unit (note 2)	$	18.62	$	20.82	$	19.92
Number of limited partnership units used in computing per unit amounts		27,006		27,006		27,006

See accompanying notes to financial statements.

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DEL TACO RESTAURANT PROPERTIES II

STATEMENTS OF PARTNERS’ EQUITY

Years Ended December 31, 2006, 2005, and 2004

	Limited Partners					General
	Units		Amount			Partner			Total
Balance, December 31, 2003		27,006	$	2,356,155		$	(25,745	)	$	2,330,410
Net Income		—		537,887			5,433			543,320
Cash Distributions		—		(589,714	)		(5,956	)		(595,670	)
Balance, December 31, 2004		27,006		2,304,328			(26,268	)		2,278,060
Net Income		—		562,300			5,679			567,979
Cash Distributions		—		(610,392	)		(6,166	)		(616,558	)
Balance, December 31, 2005		27,006		2,256,236			(26,755	)		2,229,481
Net Income		—		502,909			5,080			507,989
Cash Distributions		—		(582,766	)		(5,887	)		(588,653	)
Balance, December 31, 2006		27,006	$	2,176,379		$	(27,562	)	$	2,148,817

See accompanying notes to financial statements.

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DEL TACO RESTAURANT PROPERTIES II

STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2006			2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	507,989		$	567,979		$	543,320
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		54,180			54,180			54,180
Changes in operating assets and liabilities:
Receivable from Del Taco LLC		7,654			(166	)		(1,683	)
Deposits		(686	)		780			(485	)
Payable to limited partners		5,345			(392	)		4,595
Accounts payable		4,601			(4,627	)		10,530
Net cash provided by operating activities		579,083			617,754			610,457
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners		(588,653	)		(616,558	)		(595,670	)
Net (decrease) increase in cash		(9,570	)		1,196			14,787
Beginning cash balance		198,980			197,784			182,997
Ending cash balance	$	189,410		$	198,980		$	197,784

See accompanying notes to financial statements.

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DEL TACO RESTAURANT PROPERTIES II

NOTES TO FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Partnership: Del Taco Restaurant Properties II, a California limited partnership (the Partnership), was formed on June 20, 1984, for the purpose of acquiring real property in California for construction of seven Mexican-American restaurants to be leased under long-term agreements to Del Taco LLC (General Partner or Del Taco), for operation under the Del Taco trade name. The South Gate and Fallbrook properties were sold on May 18, 1994 and November 30, 1994, respectively. The term of the partnership agreement is until April 30, 2025 unless terminated earlier by means provided in the partnership agreement.

The Partnership has no full time employees (see Note 4). The Partnership agreement assigns full authority for general management and supervision of the business affairs of the Partnership to the General Partner. The General Partner has a one percent interest in the profits or losses and distributions of the Partnership. Limited partners have no right to participate in the day to day management or conduct of the Partnership’s business affairs.

Distributions are made to the general and limited partners in accordance with the provisions of the Partnership agreement (see Note 2).

Basis of Accounting: The Partnership utilizes the accrual method of accounting for transactions relating to the business of the Partnership. The summary of significant accounting policies presented below is designed to assist in understanding the Partnership’s financial statements. Such financial statements and accompanying notes are the representations of the Partnership’s management, who is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) in all material respects, and have been consistently applied in preparing the accompanying financial statements.

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, 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.

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DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (Continued)

Income Taxes: No provision has been made for federal or state income taxes on partnership net income, since the Partnership is not subject to income tax. Partnership income is includable in the taxable income of the individual partners as required under applicable income tax laws. Certain items, primarily related to depreciation methods, are accounted for differently for income tax reporting purposes (see Note 5).

Net Income Per Limited Partnership Unit: Net income per limited partnership unit is based on net income attributable to the limited partners (after 1% allocation to the general partner) using the weighted average number of units outstanding during the periods presented which amounted to 27,006 units for all years presented.

Use of Estimates: The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Revenue Recognition: Rental revenue is recognized based on 12 percent of gross sales of the restaurants for the corresponding period, and is earned at the point of sale.

Concentration of Risk: The five restaurants leased to Del Taco make up all of the income producing assets of the Partnership and contributed all of the Partnership’s rental revenues for the three years ended December 31, 2006. Therefore, the business of the Partnership is entirely dependent on the success of the Del Taco trade name restaurants that lease the properties.

The Partnership maintains substantially all of its cash and cash equivalents at one major commercial bank. The cash balance is in excess of the Federal Depository Insurance Commission’s limits. At December 31, 2006 and 2005, the Partnership had approximately $206,000 and $219,000, respectively, on deposit at one financial institution.

NOTE 2 — PARTNERS’ EQUITY

Pursuant to the partnership agreement, annual partnership income or loss is allocated one percent to Del Taco 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.

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 expire in the years 2021 to 2022. There is no minimum rental under any of the leases. The Partnership had a total of five properties leased as of December 31, 2006, 2005, and 2004.

The five restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $5,263,092, $5,757,713, and $5,544,983 and unaudited net income of $143,739, $484,477, and $467,008 for the years ended December 31, 2006, 2005, and 2004, respectively. Del Taco net income by restaurant includes charges for general and administrative expenses incurred in connection with supervision of restaurant operations and interest expense and the decrease in net income from the corresponding period of the prior year primarily relates to additional interest expense from the debt that was issued in connection with the acquisition of Del Taco (see Note 9).

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DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 4 — RELATED PARTIES

The receivable from Del Taco consists of rent accrued for the month of December 2006 and 2005. The rent receivable was collected in January 2007 and 2006.

The General Partner received $5,887, $6,166 and $5,956 in distributions relating to its one percent interest in the Partnership for the years ended December 31, 2006, 2005 and 2004, respectively.

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.

The General Partner provides certain minimal managerial and accounting services to the Partnership at no cost.

NOTE 5 — INCOME TAXES (UNAUDITED)

The Partnership is not subject to income taxes because its income is taxed directly to the General Partner and limited partners. The reconciling items presented in the table below are the only items that create a difference between the tax basis and reported amounts of the Partnership’s assets and liabilities.

A reconciliation of financial statement net income to taxable income for each of the periods is as follows:

	2006		2005		2004
Net income per financial statements	$	507,989	$	567,979	$	543,320
Excess book depreciation		22,561		18,108		8,364
Taxable income	$	530,550	$	586,087	$	551,684

A reconciliation of partnership equity per the financial statements to partners’ equity for tax purposes as of December 31, 2006, is as follows (unaudited):

Partners’ equity per financial statements	$	2,148,817
Issue costs of limited partnership units capitalized for tax purposes		986,745
Difference in book vs. tax depreciation		109,318
Writedown of real estate previously held for sale		161,963
Other		5,465
Partners’ equity for tax purposes	$	3,412,308

18

DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 6 — CASH DISTRIBUTIONS TO LIMITED PARTNERS

Cash distributions to limited partners for the three years ended December 31, 2006 were as follows:

	Cash		Weighted		Number of Units
	Distribution per		Average Number		Outstanding at
	Limited Partnership		of Units		the End of
Quarter Ended	Unit		Outstanding		Quarter
December 31, 2003	$	5.33		27,006		27,006
March 31, 2004		4.60		27,006		27,006
June 30, 2005		5.61		27,006		27,006
September 30, 2004		6.30		27,006		27,006
Total paid in 2004	$	21.84
December 31, 2004	$	5.70		27,006		27,006
March 31, 2005		5.53		27,006		27,006
June 30, 2005		5.26		27,006		27,006
September 30, 2005		6.11		27,006		27,006
Total paid in 2005	$	22.60
December 31, 2005	$	5.76		27,006		27,006
March 31, 2006		5.03		27,006		27,006
June 30, 2006		5.14		27,006		27,006
September 30, 2006		5.65		27,006		27,006
Total paid in 2006	$	21.58

Cash distributions per limited partnership unit were calculated based upon the weighted average units outstanding for each quarter and were paid from operations. Distributions declared in the quarter ended December 31, 2006 amounted to $5.21 per limited partnership unit and were paid in January 2007.

NOTE 7 — RESULTS BY QUARTER (UNAUDITED)

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
Year ended December 31, 2006
Rental revenues	$	160,250	$	164,720	$	159,228	$	147,373
Net income		106,197		140,960		137,686		123,146
Net income per limited partnership unit		3.89		5.17		5.05		4.51
Year ended December 31, 2005
Rental revenues	$	167,343	$	179,368	$	175,543	$	168,671
Net income		116,366		154,858		151,933		144,822
Net income per limited partnership unit		4.26		5.68		5.57		5.31

19

DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 8 — PAYABLE TO LIMITED PARTNERS

Payable to limited partners represents a reclassification from cash for distribution checks made to limited partners that have remained outstanding for 6 months or longer.

NOTE 9 — ACQUISITION OF GENERAL PARTNER

On January 30, 2006, the parent company of the General Partner entered into an agreement to sell all of its issued and outstanding common stock to Sagittarius Brands, Inc. The transaction was consummated on March 29, 2006 and did not have an impact on the financial position, results of operations or cash flows of the Partnership.

20

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Refer to Form 8-K dated November 30, 2006.

Item 9A. 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 our management, including our President and Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our President and Treasurer have concluded that these disclosure controls and procedures are effective in timely alerting them to material information relating to the Partnership (including its subsidiaries) required to be included in our periodic Securities and Exchange Commission filings.

(b) Changes in internal controls:

There were no significant changes in the Partnership’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.

Item 9B. Other Information

None.

PART III

Item 10. Directors and Executive Officers

(a) & (b) Del Taco serves as the Partnership’s sole general partner. Individuals who perform the functions of directors and officers of the Partnership consist of the following officers of Del Taco:

Name	Title	Age
Shirlene Lopez	President		42
C. Ronald Petty	President of Development		62
James D. Stoops	Executive Vice President, Operations		54
Janet D. Erickson	Executive Vice President, Purchasing		50
Steven L. Brake	Treasurer		34

Del Taco’s term as general partner will continue indefinitely, subject to the right of a majority in interest of the limited partners to remove and replace it. The above referenced officers of the General Partner will hold office until their resignation or the election or appointment of their successor.

(c)	None
(d)	No family relationship exists between any such officer of the General Partner.
(e)	The following is an account of the business experience during the past five years of each such officer:

21

Shirlene Lopez, President of Del Taco LLC. Ms. Lopez began her career with Del Taco in 1978 as an hourly employee and advanced through the ranks to General Manager in 1984. Ms. Lopez was promoted to the corporate office in 1989 as Human Resource Manager. In 1994, she was promoted to Executive Project Manager reporting to the CEO and in 1996, to Director of Corporate Development in charge of all interior image and design and in 1997, to Vice President, Corporate Development & Design. In February 2002 Ms. Lopez was promoted to Executive Vice President, Operations Services and was promoted to President in October 2006.

C. Ronald Petty, President of Development of Del Taco LLC. Mr. Petty began his career in the restaurant business in 1973 with McDonald’s Corporation. He was employed by McDonald’s in a real estate capacity until 1978. For the next 12 years, Mr. Petty was in various officer positions with Burger King. These positions included Vice President of Real Estate, Sr. Vice President of Development, Region Vice President, Sr. Vice President European Operations, President of International and President of U.S. Mr. Petty served as President of Miami Subs from 1990-1992; President and CEO of Denny’s 1993-1996; President and CEO of Peter Piper Pizza 1996-1998; President of Del Taco December 1998 until March 2006 and President of Development since March 2006.

James D. Stoops, Executive Vice President, Operations of Del Taco LLC. From 1968 to 1991, Mr. Stoops served in a wide variety of operations positions with Burger King Corporation with increasing levels of responsibility. In 1985, Mr. Stoops was appointed Region Vice President/General Manager for the New York region and served in that position until October of 1990. In January of 1991, he joined Del Taco, Inc. in his current post.

Janet D. Erickson, Executive Vice President, Purchasing of Del Taco LLC. From 1979 to 1986, Ms. Erickson was with Denny’s Incorporated. She served in the Research and Development department in a variety of positions until 1982 when she was promoted to the position of Purchasing Agent. Ms. Erickson was hired in 1986 as Manager of Contract Purchasing with Carl Karcher Enterprises, a post she held until March 1990 when she became Vice President, Purchasing for Del Taco, Inc. Ms. Erickson has a Bachelor of Science degree in Foods and Nutrition from Cal State Polytechnic University in Pomona, California.

Steven L. Brake, Treasurer of Del Taco LLC. Mr. Brake has been Treasurer since March 2006 and previously served as the Corporate Controller of Del Taco LLC from September 2003 to March of 2006. From December 1995 until September 2003 Mr. Brake spent seven years with Arthur Andersen and one year with KPMG LLP in their respective audit departments. Mr. Brake is a licensed certified public accountant and holds a Bachelor of Arts degree in Economics from the University of California, Irvine and an MBA from the Paul Merage School of Business at the University of California, Irvine.

Code of Ethics

The Partnership has no executive officers or any fulltime employees and, accordingly, has not adopted a code of ethics.

22

Item 11. Executive Compensation

The Partnership has no executive officers or directors and pays no direct remuneration to any executive officer or director of its General Partner. The Partnership has not issued any options or stock appreciation rights to any executive officer or director of its General Partner, nor does the Partnership propose to pay any annuity, pension or retirement benefits to any executive officer or director of its General Partner. The Partnership has no plan, nor does the Partnership presently propose a plan, which will result in any remuneration being paid to any executive officer or director of the General Partner upon termination of employment.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Security Holder Matters

(a)	No person of record currently owns more than five percent of limited partnership units of the Partnership, nor was any person known of by the Partnership to own of record and beneficially, or beneficially only, more than five percent of such securities.
(b)	Neither Del Taco LLC, nor any executive officer or director of Del Taco LLC, owns any limited partnership units of the Partnership.
(c)	The Partnership knows of no contractual arrangements, the operation or the terms of which may at a subsequent date result in a change in control of the Partnership, except for provisions in the Partnership agreement providing for removal of the General Partner by holders of a majority of the limited partnership units and if a material event of default occurs under the financing agreements of the General Partner.

23

Item 13. Certain Relationships and Related Transactions

(a)	No transactions have occurred between the Partnership and any executive officer or director of its General Partner.
	During 2006, the following transactions occurred between the Partnership and the General Partner pursuant to the terms of the partnership agreement.

(1)	The General Partner earned $5,080 as its one percent share of the net income of the Partnership.
(2)	The General Partner received $5,887 in distributions relating to its one percent interest in the Partnership.

(b)	During 2006, the Partnership had no business relationships with any entity of a type required to be reported under this item.
(c)	Neither the General Partner, any director or officer of the General Partner, or any associate of any such person, was indebted to the Partnership at any time during 2006 for any amount.
(d)	Not applicable.

Item 14. Principal Accountant Fees and Services

The following table presents fees for professional services rendered by Squar, Milner, Peterson, Miranda & Williamson, LLP (Squar Milner), principal auditor since the quarter ended September 30, 2005, and KPMG LLP who was the principal auditor through the quarter ended June 30, 2005.

	Squar Milner				KPMG LLP
	2006		2005		2005
Audit Fees	$	14,580	$	1,080	$	12,131
Audit-Related Fees		0		0		0
Tax Fees		0		0		11,250
All Other Fees		0		0		0
Total	$	14,580	$	1,080	$	23,381

The General Partner approves all the audit and non-audit services, and related fees, provided to the Partnership by the independent auditors prior to the services being rendered.

24

PART IV

Item 15. Exhibits, Financial Statements Schedules, and Reports on Form 8-K

(a)(1)	Financial Statements
	Included in Part II of this report:
	Report of Independent Registered Public Accounting Firm – Squar, Milner, Peterson, Miranda & Williamson, LLP
	Report of Independent Registered Public Accounting Firm – KPMG LLP
	Balance Sheets
	Statements of Income
	Statements of Partners’ Equity
	Statements of Cash Flows
	Notes to Financial Statements
(a)(2)	Financial Statement Schedules
	Schedule III – Real Estate and Accumulated Depreciation
	Financial statement schedules other than those referred to above have been omitted because they are not applicable or not required.
(b)	Reports on Form 8-K
	During the three months ended December 31, 2006, the following report on Form 8-K was filed:
	Form 8-K dated November 30, 2006 was filed regarding the merger of Squar, Milner, Miranda & Williamson, LLP with Peterson & Co. LLP. The name of the post-merger firm is Squar, Milner, Peterson, Miranda & Williamson, LLP.
(c)	Exhibits required by Item 601 of Regulation S-K:

1.	Incorporated herein by reference, Agreement of Limited Partnership of Del Taco Restaurant Properties II filed as Exhibit 3.01 to Partnership’s Registration Statement on Form S-11 as filed with the Securities and Exchange Commission on July 10, 1984.
2.	Incorporated herein by reference, Amendment to Agreement of Limited Partnership of Del Taco Restaurant Properties II.
3.	Incorporated herein by reference, Form of Standard Lease to be entered into by partnership and Del Taco, Inc., as lessee, filed as Exhibit 10.02 to Partnership’s Registration Statement on Form S-11 as filed with the Securities and Exchange Commission on July 10, 1984.
31.1	Shirlene Lopez’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Steven L. Brake’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

25

DEL TACO RESTAURANT PROPERTIES II — SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2006

							Cost capitalized		Gross amount at
			Initial cost				subsequent to		which carried at
			to company				acquisition		close of period								Life on which
			Land		Buildings &				Land, Buildings &								depreciation in latest
Description			& land		Improve-		Carrying		improvements		Accumulated		Date of		Date		income statement
(All Restaurants)	Encumbrances		improvements		ments		costs		Total		depreciation		construction		acquired		is computed
Victorville, CA	$	—	$	327,770	$	224,843	$	—	$	552,613	$	195,815		1986		1986	20 (LI), 35 (BI)
Colton, CA		—		262,661		180,179		—		442,840		156,920		1986		1986	20 (LI), 35 (BI)
Palmdale, CA		—		404,791		277,677		—		682,468		241,832		1986		1986	20 (LI), 35 (BI)
Pedley, CA		—		364,334		249,925		—		614,259		217,660		1987		1987	20 (LI), 35 (BI)
Thousand Palms, CA		—		446,450		306,255		—		752,705		266,713		1987		1987	20 (LI), 35 (BI)
	$	—	$	1,806,006	$	1,238,879	$	—	$	3,044,885	$	1,078,940

			Accumulated
	Restaurants		Depreciation
Balances at December 31, 2003:	$	3,044,885	$	916,400
Additions		—		54,180
Retirements		—		—
Balances at December 31, 2004:		3,044,885		970,580
Additions		—		54,180
Retirements		—		—
Balances at December 31, 2005:		3,044,885		1,024,760
Additions		—		54,180
Retirements		—		—
Balances at December 31, 2006:	$	3,044,885	$	1,078,940

The aggregate cost basis of Del Taco Restaurant Properties II real estate assets for Federal income tax purposes was $2,188,770 at December 31, 2006.

See accompanying report of independent registered public accounting firm.

26

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Partnership 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
	Del Taco LLC
	General Partner
Date March 23, 2007	Shirlene Lopez Shirlene Lopez
	President
Date March 23, 2007	C. Ronald Petty C. Ronald Petty
	President of Development
Date March 23, 2007	Steven L. Brake Steven L. Brake
	Treasurer

27

EXHIBIT INDEX

Exhibit	Description
1.	Incorporated herein by reference, Agreement of Limited Partnership of Del Taco Restaurant Properties II filed as Exhibit 3.01 to Partnership’s Registration Statement on Form S-11 as filed with the Securities and Exchange Commission on July 10, 1984.
2.	Incorporated herein by reference, Amendment to Agreement of Limited Partnership of Del Taco Restaurant Properties II.
3.	Incorporated herein by reference, Form of Standard Lease to be entered into by partnership and Del Taco, Inc., as lessee, filed as Exhibit 10.02 to Partnership’s Registration Statement on Form S-11 as filed with the Securities and Exchange Commission on July 10, 1984.
31.1	Shirlene Lopez’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Steven L. Brake’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

28

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRESIDENT PURSUANT TO SECURITIES
ACT RULES 13A-14 AND 15D-14 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Shirlene Lopez, President of Del Taco LLC, General Partner of Del Taco Restaurant Properties II (The “Partnership”), certify that:

1.	I have reviewed this annual report on Form 10-K of the Partnership;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s independent registered public accounting firm and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 23, 2007	/s/ Shirlene Lopez
	Shirlene Lopez
	President

EX-31.2

Exhibit 31.2

CERTIFICATION OF TREASURER PURSUANT TO SECURITIES
ACT RULES 13A-14 AND 15D-14 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Steven L. Brake, Treasurer of Del Taco LLC, General Partner of Del Taco Restaurant Properties II (“The Partnership”) certify that:

1.	I have reviewed this annual report on Form 10-K of the Partnership;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s independent registered public accounting firm and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 23, 2007	/s/ Steven L. Brake
	Steven L. Brake
	Treasurer

EX-32.1

Exhibit 32.1

CERTIFICATION OF PRESIDENT PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18,
UNITED STATES CODE)

In connection with the Annual Report of Del Taco Restaurant Properties II (the “Partnership”) on Form 10-K for the year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Partnership, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the partnership.

Date: March 23, 2007	/s/ Shirlene Lopez
	Shirlene Lopez
	President
Date: March 23, 2007	/s/ Steven L. Brake
	Steven L. Brake
	Treasurer

A signed original of this written statement required by Section 906 has been provided to the Partnership and will be retained by the Partnership and furnished to the Securities and Exchange Commission or its staff upon request.