<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

FORM 10-K

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED
         DECEMBER 31, 2002

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

Commission File Number:  33-89476

                      COMMONWEALTH INCOME & GROWTH FUND II
             (Exact name of registrant as specified in its charter)

         Pennsylvania                   23-2795120
(State or other jurisdiction of         (I.R.S. Employer Identification Number)
incorporation or organization)

                               470 John Young Way
                                 Exton PA 19341
                                 (610) 494-9600

Indicate by check mark whether the registrant (I) 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, and (ii) has been subject to such filing requirements
for the past 90 days:

YES   [X]    NO  [ ]

Indicate by check mark if disclosure of delinquent fillers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.

                       DOCUMENTS INCORPORATED BY REFERENCE
  (Specific Sections Incorporated are identified under applicable items herein)

         Certain exhibits to the Company's Registration Statement on Form S-1
(File No. 33-89476) and Annual Report on form 10-K for the fiscal year ended
December 31, 2002 are incorporated by reference as Exhibits in Part IV of this
Report.

<PAGE>

PART I

ITEM 1:  BUSINESS

GENERAL

Commonwealth Income and Growth Fund II (the "Partnership") was formed on January
13, 1995, under the Pennsylvania Revised Uniform Limited Partnership Act. The
Partnership began offering $15,000,000 of Units of Limited Partnership ("Units")
to the public on May 12, 1995 (the "Offerings"). On September 22, 1995, the
escrow agent released $2,521,380 in subscriptions from investors and 126,118
Units were admitted as Limited Partners of the Partnership. The Partnership
terminated its offering of Units on May 12, 1997, with 461,817 Units
($9,235,185) admitted as Limited Partners of the Partnership.

See "The Glossary" below for the definition of capitalized terms not otherwise
defined in the text of this report.

PRINCIPAL INVESTMENT OBJECTIVES

The Partnership was formed for the purpose of acquiring various types of
Equipment, including computer peripheral and other similar capital equipment.
The Partnership utilized the net proceeds of the Offering to purchase IBM and
IBM compatible computer peripheral and other similar capital equipment. The
Partnership utilizes Retained Proceeds and debt financing (not to exceed 30% of
the aggregate cost of the Equipment owned or subject to Conditional Sales
Contract by the Partnership at the time the debt is incurred) to purchase
additional Equipment. The Partnership acquires and leases equipment principally
to U.S. corporations and other institutions pursuant to Operating Leases. The
Partnership retains the flexibility to enter into Full Payout Net Leases, Direct
Financing Leases and Conditional Sales Contracts.

The Partnership's principal investment objectives are to;

     (a)  acquire, lease and sell Equipment to generate revenues from operations
          sufficient to provide quarterly cash distributions to Limited
          Partners;
     (b)  preserve and protect Limited Partners' capital;
     (c)  use a portion of Cash Flow and Net Disposition Proceeds derived from
          the sale, refinancing or other disposition of Equipment to purchase
          additional Equipment; and
     (d)  refinance, sell or otherwise dispose of Equipment in a manner that
          will maximize the proceeds to the Partnership.

THERE CAN BE NO ASSURANCE THAT ANY OF THESE OBJECTIVES WILL BE ATTAINED.

Limited Partners do not have the right to vote on or otherwise approve or
disapprove any particular investment to be made by the Partnership.

Although the Partnership has acquired predominately new Equipment, the
Partnership may purchase used Equipment. Generally, Equipment is acquired from
manufacturers, distributors, leasing companies, agents, owner-users,
owner-lessors, and other suppliers upon terms that vary depending upon the
Equipment and supplier involved. Manufacturers and distributors usually furnish
a limited warranty against defects in material and workmanship and some purchase
agreements for Equipment provide for service and replacement of parts during a
limited period. Equipment purchases are also made through lease brokers and on
an ad hoc basis to meet the needs of a particular lessee.

As of December 31, 2002, substantially all Equipment purchased by the
Partnership is subject to an Operating Lease or an Operating Lease was entered
into with a third party when the Partnership acquired an item of Equipment. The
Partnership may also engage in sale/leaseback transactions, pursuant to which
the Partnership would purchase Equipment from companies that would then
immediately lease the Equipment from the Partnership. The Partnership may also
purchase Equipment which is leased under Full Payout Net Leases, Direct
Financing Leases or sold under Conditional Sales Contracts at the time of
acquisition or the Partnership may enter into a Full Payout Net Lease, Direct
Financing Leases or Conditional Sales Contract with a third party when the
Partnership acquires an item of Equipment.

                                        2
<PAGE>

The Partnership may enter into arrangements with one or more manufacturers
pursuant to which the Partnership purchases from such manufacturers Equipment
that has previously been leased directly by the manufacturer to third parties
("vendor leasing agreements"). The Partnership and manufacturers may agree to
nonrecourse loans to the Partnership from the manufacturers to finance the
acquisition of Equipment secured by the Equipment and the receivables due to the
manufacturers from users of such Equipment. It is expected that the
manufacturers of Equipment will provide maintenance, remarketing and other
services for the Equipment subject to such agreements. As of December 31, 2002,
the Partnership has not entered into any such agreements.

The General Partner has the discretion consistent with its fiduciary duty to
change the investment objectives of the Partnership if it determines that such a
change is in the best interest of the Limited Partners and so long as such a
change is consistent with the Partnership Agreement. The General Partner will
notify the Limited Partners if it makes such a determination to change the
Partnership's investment objectives.

TYPES OF EQUIPMENT

Computer Peripheral Equipment. Computer peripheral equipment consists of devices
used to convey information into and out of a central processing unit (or
"mainframe") of a computer system, such as tape drives, disk drives, tape
controllers, disk controllers, printers, terminals and related control units,
all of which are in some way related to the process of storing, retrieving, and
processing information by computer.

The Partnership acquires primarily IBM manufactured or IBM compatible equipment.
The General Partner believes that dealing in IBM or IBM compatible equipment is
particularly advantageous because of the large IBM customer base, policy of
supporting users with software and maintenance services and the large amount of
IBM and IBM compatible equipment in the marketplace.

Computer technology has developed rapidly in recent years and is expected to
continue to do so. Technological advances have permitted continued reductions in
the cost of computer processing capacity, thereby permitting applications not
economically feasible a few years ago. Much of the older IBM and IBM compatible
computer peripheral equipment has not been retired from service, because
software is generally interchangeable between older and newer equipment, and
older equipment is capable of performing many of the same functions as newer
equipment. The General Partner believes that historically values of peripheral
equipment have been affected less dramatically by changes in technology than
have the values of central processing units. An equipment user who upgrades to a
more advanced central processor generally can continue to use his existing
peripheral equipment. Peripheral equipment nevertheless is subject to declines
in value as new, improved models are developed and become available.
Technological advances and other factors, discussed below in Management
Discussion and Analysis, have at times caused dramatic reduction in the market
prices of older models of IBM and IBM compatible computer peripheral equipment
from the prices at which they were originally introduced.

Other Equipment-Restrictions. The Partnership acquires computer peripheral
equipment, such as tape drives, disk drives, tape controllers, disk controllers,
printers, terminals and related control units, all of which are in some way
related to the process of storing, retrieving and processing information by
computer. The General Partner is also authorized, but does not presently intend,
to cause the Partnership to invest in non-IBM compatible computer peripheral,
data processing, telecommunication or medical technology equipment. The
Partnership may not invest in any of such other types of Equipment (i) to the
extent that the purchase price of such Equipment, together with the aggregate
Purchase Price of all such other types of Equipment then owned by the
Partnership, is in excess of 25% of the total cost of all of the assets of the
Partnership at the time of the Partnership's commitment to invest therein and
(ii) unless the General Partner determines that such purchase is in the best
economic interest of the Partnership at the time of the purchase and, in the
case of non-IBM compatible peripheral Equipment, that such Equipment is
comparable in quality to similar IBM or IBM compatible Equipment. There can be
no assurance that any Equipment investments can be found which meet this
standard. Accordingly, there can be no assurance that investments of this type
will be made by the Partnership.

                                        3
<PAGE>

DIVERSIFICATION

Diversification is generally desirable to minimize the effects of changes in
specific industries, local economic conditions or similar risks. However, the
extent of the Partnership's diversification, in the aggregate and within each
category of Equipment, depends in part upon the financing which can be assumed
by the Partnership or borrowed from third parties on satisfactory terms. The
Partnership's policy not to borrow on a recourse basis will further limit its
financing options. Diversification also depends on the availability of various
types of Equipment. As of December 31, 2002, the Partnership has acquired a
diversified Equipment portfolio, which it has leased to 47 different companies
located throughout the United States. The allocations are as follows:

      -----------------------------------------------------------------
                          Equipment Type             Approximate %
      -----------------------------------------------------------------
                           Workstations                     40%
                         Escon Directors                    18%
                        High-End Printers                   18%
                         Tape Subsystems                    12%
                    Communication Controllers                6%
                             Routers                         5%
                         Low-End Printers                    1%
                                                           ----
                             Total                         100%
                                                           ====

         During the operational stage of the Partnership, the Partnership may
not at any one point in time lease (or sell pursuant to a Conditional Sales
Contract) more than 25% of the Equipment to a single Person or Affiliated group
of Persons.

DESCRIPTION OF LEASES

The Partnership to date has purchased, and in the future intends to continue to
purchase only Equipment that is subject to a lease or for which a lease or
similar agreement will be entered into contemporaneously with the consummation
of the Partnership's acquisition of the Equipment. The General Partner to date
has leased and in the future intends to lease most of the Equipment purchased by
the Partnership to third parties pursuant to Operating Leases. Operating Leases
are relatively short-term (12 to 48 month) leases under which the aggregate
noncancellable rental payments during the original term of the lease are not
sufficient to permit the lessor to recover the purchase price of the subject
Equipment. The Equipment may also be leased pursuant to Full Payout Net Leases.
Full Payout Net Leases are leases under which the aggregate noncancellable
rental payments during the original term of the lease are at least sufficient to
recover the purchase price of the subject Equipment. It is anticipated that the
Partnership will enter into few, if any, Full Payout net Leases. The General
Partner may also enter into Conditional Sales Contracts for Equipment. A
Conditional Sales Contract generally provides that the noncancellable payments
to the seller over the term of the contract are sufficient to recover the
investment in such Equipment and to provide a return on such investment. Under a
Conditional Sales Contract, the seller reserves title to, and retain a security
interest in, the Equipment until the Purchase Price of the Equipment is paid. As
of December 31, 2002, the Partnership has not entered into any Full Payout Net
Leases or Conditional Sales Contracts for Equipment and does not presently
intend to do so. The Equipment may also be leased pursuant to Capital Leases.
Capital Leases are leases under which the Equipment either transfers to the
lessee at the end of the lease term, contains a bargain purchase price option,
the lease term is equal to 75% or more of the estimated economic life of the
Equipment, or the present value at the beginning of the lease term of the
minimum lease payments is equal to or exceeds 90% of the excess of the fair
value of the Equipment. As of December 31, 2002, we have entered into six
Capital Leases with one lessee.

In general, the terms of the Partnership's leases, whether the Equipment is
leased pursuant to an Operating lease, Capital Lease or a Full Payout Net Lease,
depend upon a variety of factors, including: the desirability of each type of
lease from both an investment and a tax point of view; the relative demand among
lessees for Operating, Capital Lease or Full Payout Net Leases; the type and use
of Equipment and its anticipated residual value; the business of the lessee and
its credit rating; the availability and cost of financing; regulatory
considerations; the accounting treatment of the lease sought by the lessee or
the Partnership; and competitive factors.

                                        4
<PAGE>

An Operating Lease generally represents a greater risk to the Partnership than a
Capital Lease or Full Payout Net Lease, because in order to recover the purchase
price of the subject Equipment and earn a return on such investment, it is
necessary to renew or extend the Operating Lease, lease the Equipment to a third
party at the end of the original lease term, or sell the Equipment. On the other
hand, the term of an Operating Lease is generally much shorter than the term of
a Capital Lease or Full Payout Net Lease, and the lessor is thus afforded an
opportunity under an Operating Lease to re-lease or sell the subject Equipment
at an earlier stage of the Equipment's life cycle than under a Capital Lease or
Full Payout Net Lease. Also, the annual rental payments received under an
Operating Lease are ordinarily higher than those received under a Capital Lease
or Full Payout Net Lease.

The Partnership's policy is to generally enter into "triple net leases" (or the
equivalent, in the case of a Conditional Sales Contract) which typically provide
that the lessee or some other party bear the risk of physical loss of the
Equipment; pay taxes relating to the lease or use of the Equipment; maintain the
Equipment; indemnify the Partnership-lessor against any liability suffered by
the Partnership as the result of any act or omission of the lessee or its
agents; maintain casualty insurance in an amount equal to the greater of the
full value of the Equipment and a specified amount set forth in the lease; and
maintain liability insurance naming the Partnership as an additional insured
with a minimum coverage which the General Partner deems appropriate. In
addition, the Partnership may purchase "umbrella" insurance policies to cover
excess liability and casualty losses, to the extent deemed practicable and
advisable by the General Partner. As of December 31, 2002, all leases that have
been entered into are "triple net leases".

The General Partner has not established any standards for lessees to whom it
will lease Equipment and, as a result, there is not an investment restriction
prohibiting the Partnership from doing business with any lessees. However, a
credit analysis of all potential lessees is undertaken by the General Partner to
determine the lessee's ability to make payments under the proposed lease. The
General Partner may refuse to enter into an agreement with a potential lessee
based on the outcome of the credit analysis.

The terms and conditions of the Partnership's leases, or Conditional Sales
Contracts, are each determined by negotiation and may impose substantial
obligations upon the Partnership. Where the Partnership assumes maintenance or
service obligations, the General Partner generally causes the Partnership to
enter into separate maintenance or service agreements with manufacturers or
certified maintenance organizations to provide such services. Such agreements
generally require annual or more frequent adjustment of service fees. As of
December 31, 2002, the Partnership has not entered into any such agreements.

BORROWING POLICIES

The General Partner, at its discretion, may cause the Partnership to incur debt
in the maximum aggregate amount of 30% of the aggregate cost of the Equipment
owned, or subject to Conditional Sales Contract (except that the Partnership may
not incur any indebtedness to acquire Equipment until the net proceeds of the
Offering are fully invested, or committed to investment, in Equipment). The
Partnership will incur only non-recourse debt, which is secured by Equipment and
lease income there from. Such leveraging permits the Partnership to increase the
aggregate amount of its depreciable assets, and, as a result, potentially
increases both its lease revenues and its federal income tax deductions above
those levels, which would be achieved without leveraging. There is no limit on
the amount of debt that may be incurred in connection with the acquisition of
any single item of Equipment. Any debt incurred is fully amortized over the term
of the initial lease or Conditional Sales Contract to which the Equipment
securing the debt is subject. The precise amount borrowed by the Partnership
depends on a number of factors, including the types of Equipment acquired by the
Partnership; the creditworthiness of the lessee; the availability of suitable
financing; and prevailing interest rates. The Partnership is flexible in the
degree of leverage it employs, within the permissible limit. There can be no
assurance that credit will be available to the Partnership in the amount or at
the time desired or on terms considered reasonable by the General Partner. As of
December 31, 2002, the aggregate non-recourse debt outstanding of $1,780,000 was
17.2% of the aggregate cost of the Equipment owned.

                                        5
<PAGE>

The Partnership may continue to purchase some items of Equipment without
leverage. If the Partnership purchases an item of Equipment without leverage and
thereafter suitable financing becomes available, it may then obtain the
financing, secure the financing with the purchased Equipment to the extent
practicable and invest any proceeds from such financing in additional items of
Equipment, or it may distribute some or all of such proceeds to the Limited
Partners. Any such later financing will be on terms consistent with the terms
applicable to borrowings generally. As of December 31, 2002, the Partnership has
not exercised this option.

After the net proceeds of the offering are fully invested in Equipment, the
General Partner plans to continue to cause the Partnership to borrow funds, to
the fullest extent practicable, at interest rates fixed at the time of
borrowing. However, the Partnership may borrow funds at rates, which vary with
the "prime" or "base" rate. If lease revenues were fixed, a rise in the "prime"
or "base" rate would increase borrowing costs and reduce the amount of the
Partnership's income and cash available for distribution. Therefore, the General
Partner is permitted to borrow funds to purchase Equipment at fluctuating rates
only if the lease for such Equipment provides for fluctuating rental payments
calculated on a similar basis.

Any additional debt incurred by the Partnership must be non-recourse.
Non-recourse debt, in the context of the business to be conducted by the
Partnership, means that the lender providing the funds can look for security
only to the Equipment pledged as security and the proceeds derived from leasing
or selling such Equipment. Neither the Partnership nor any Partner (including
the General Partner) would be liable for repayment of any non-recourse debt.

Loan agreements may also require that the Partnership maintain certain reserves
or compensating balances and may impose other obligations upon the Partnership.
Moreover, since a significant portion of the Partnership's revenues from the
leasing of Equipment will be reserved for repayment of debt, the use of
financing reduces the cash, which might otherwise be available for distributions
until the debt has been repaid and may reduce the Partnership's Cash Flow over a
substantial portion of the Partnership's operating life. As of December 31,
2002, no such agreements existed.

The General Partner and any of its Affiliates may, but are not required to, make
loans to the Partnership on a short-term basis. If the General Partner or any of
its Affiliates makes such a short-term loan to the Partnership, the General
Partner of Affiliate may not charge interest at a rate greater that the interest
rate charged by unrelated lenders on comparable loans for the same purpose in
the same locality. In no event is the Partnership required to pay interest on
any such loan at an annual rate greater than three percent over the "prime rate'
from time to time announced by PNC Bank, Philadelphia, Pennsylvania ("PNC
Bank"). All payments of principal and interest on any financing provided by the
General Partner or any of its affiliates are due and payable by the Partnership
within 12 months after the date of the loan.

REFINANCING POLICIES

Subject to the limitations set forth in "Borrowing Policies" above, the
Partnership may refinance its debt from time to time. With respect to a
particular item of Equipment, the General Partner will take into consideration
such factors as the amount of appreciation in value, if any, to be realized, the
possible risks of continued ownership, and the anticipated advantages to be
obtained for the Partnership, as compared to selling such Equipment. As of
December 31, 2002, the Partnership has refinanced its notes payable for six
existing Operating Leases. The refinanced notes payable, originally set to
expire between February, 2004 and December, 2004, had a balance of approximately
$190,000 at the time of refinancing. The Partnership received cash of
approximately $46,000, net of refinancing fees of approximately $3,000. The new
notes payable, which was approximately $239,000 at the time of refinancing,
expire in June 2006. Simultaneous, with the refinancing, the Partnership entered
into Direct Financing Capital Leases with the lessee for this Equipment.

Refinancing, if achievable, may permit the Partnership to retain an item of
Equipment and at the same time to generate additional funds for reinvestment in
additional Equipment or for distribution to the Limited Partners.

                                        6
<PAGE>

LIQUIDATION POLICIES

The General Partner intends to cause the Partnership to begin disposing of its
Equipment in approximately January 2006. Notwithstanding the Partnership's
objective to sell all of its assets and dissolve by December 31, 2006, the
General Partner may at any time cause the Partnership to dispose of all its
Equipment and, dissolve the Partnership upon the approval of Limited Partners
holding a Majority in Interest of Units.

Particular items of Equipment may be sold at any time if, in the judgment of the
General Partner, it is in the best interest of the Partnership to do so. The
determination of whether particular items of Partnership Equipment should be
sold or otherwise disposed of is made by the General Partner after consideration
of all relevant factors (including prevailing general economic conditions,
lessee demand, the General Partner's views of current and future market
conditions, the cash requirements of the Partnership, potential capital
appreciation, cash flow and federal income tax considerations), with a view
toward achieving the principal investment objectives of the Partnership. As
partial payment for Equipment sold, the Partnership may receive purchase money
obligations secured by liens on such Equipment. Subject to the General Partner's
discretion the Partnership may extend beyond December 31, 2006, if deemed
beneficial to the Partnership.

MANAGEMENT OF EQUIPMENT

Equipment management services for the Partnership's Equipment is provided by the
General Partner and its Affiliates and by persons employed by the General
Partner. Such services will consist of collection of income from the Equipment,
negotiation and review of leases, Conditional Sales Contracts and sales
agreements, releasing and leasing-related services, payment of operating
expenses, periodic physical inspections and market surveys, servicing
indebtedness secured by Equipment, general supervision of lessees to assure that
they are properly utilizing and operating Equipment, providing related services
with respect to Equipment, supervising, monitoring and reviewing services
performed by others in respect to Equipment and preparing monthly Equipment
operating statements and related reports.

COMPETITION

The equipment leasing industry is highly competitive. The Partnership competes
with leasing companies, equipment manufacturers and their affiliated financing
companies, distributors and entities similar to the Partnership (including other
programs sponsored by the General Partner), some of which have greater financial
resources than the Partnership and more experience in the equipment leasing
business than the General Partner. Other leasing companies and equipment
manufacturers, their affiliated financing companies and distributors may be in a
position to offer equipment to prospective lessees on financial terms, which are
more favorable than those, which the Partnership can offer. They may also be in
a position to offer trade-in privileges, software, maintenance contracts and
other services, which the Partnership may not be able to offer. Equipment
manufacturers and distributors may offer to sell equipment on terms (such as
liberal financing terms and exchange privileges), which will afford benefits to
the purchaser similar to those obtained through leases. As a result of the
advantages, which certain of its competitors may have, the Partnership may find
it necessary to lease its Equipment on a less favorable basis than certain of
its competitors.

The computer peripheral equipment industry is extremely competitive. Competitive
factors include pricing, technological innovation and methods of financing.
Certain manufacturer-lessors maintain advantages through patent protection,
where applicable, and through a policy that combines service and hardware with
payment accomplished through a single periodic charge.

The dominant firm in the computer marketplace is International Business Machines
Corporation, and its subsidiary IBM Credit Corporation is the dominant force in
the leasing of IBM equipment. Because of IBM's substantial resources and
dominant position, revolutionary changes with respect to computer systems,
pricing, marketing practices, technological innovation and the availability of
new and attractive financing plans could occur at any time. Significant action
in any of these areas by IBM or IBM Credit Corporation might materially
adversely affect the Partnership's business or the other manufacturers with whom
the General Partner might negotiate purchase and other agreements. Any adverse
effect on these manufacturers could be reflected in the overall return realized
by the Partnership on equipment from those manufacturers of from IBM.

                                        7
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Investments

The Partnership, through Commonwealth Capital Corp ("CCC"), participates in the
purchase of equipment subject to associated debt obligations and lease
agreements. The purchase price, list price and monthly rentals presented below
are the Partnership's participation of the total amounts, based on CCC's
allocation of the equipment to the Partnership, and in some instances, other
affiliated partnerships.

As of March 26, 2003, the Partnership has purchased, or has made the commitment
to purchase, the following Equipment:

<TABLE>
<CAPTION>
                                                   EQUIPMENT                 LIST        PURCHASE     MONTHLY   LEASE
          LESSEE                   MFG            DESCRIPTION                PRICE         PRICE       RENT     TERM

<S>                             <C>          <C>                          <C>            <C>           <C>      <C>
           Chrysler             STK          (2) 9490-M34                $  686,158     $  490,110    $12,001      48
             ADP                IBM          (1) 3490-A20                   422,900        178,673      4,290      36
       Household Intl.          STK          (3) 9490-M34                   671,898        405,628      9,100      36
            Timken              DEC          (1) Alpha server               259,507        204,781      5,308      36
            Timken              DEC          (1) Alpha server                46,657         40,928      1,062      36
       Johnson Control          HP           (13) HP9000-C110               441,415        304,718      7,961      36
          Honda R&D             SGI          Onyx Infinite Reality          323,108        263,498      7,076      36
             AT&T               IBM          (1) 3900 DW1/DW2               746,485        477,466     10,205      36
          Federated             IBM          (38) 3130-020                  909,910        600,000     15,162      34
            Lucent              SUN          (1)E6000 server                642,452        461,207     12,042      36
        Lucent upgrade          SUN          Upgrade to server               97,000         69,559      2,046      34
             AT&T               STK          (9) 9490-M34                 2,015,694      1,268,909     31,144      36
             Avon               IBM          (75%( (8) 3900-OW1           2,002,710      1,542,485     37,058      36
           Chrysler             IBM          (2) ES3000                   1,146,500        778,454     22,844      24
        Allied Signal           HP           (20) C180 workstations         838,339        362,615     11,775      24
         Transamerica           SUN          (2) ES3000 servers             212,730        154,965      3,976      36
    Computer Science Corp.      SGI          (50%) (141) workstations     2,055,893        822,455     20,174      36
        Charles Schwab          IBM          (2) 9032-003                   845,043        523,399     21,031      36
        Charles Schwab          IBM          (20%) (6) 9032-003           2,479,443        307,983      6,989      36
        Equitable Life          SUN          (2) E3000                      336,220        205,893      6,491      36
            Chase               SUN          (3) E45D                       358,562        244,584      8,386      24
            Aetna               STK          (2) 9490-M34                   535,932        194,272      4,395      36
        Equitable Life          SUN          6000 Server                    617,310        466,496     12,186      36
           Chrysler             STK          Redwood Tape Drives            466,140        275,094      6,313      36
           Chrysler             STK          Redwood Tape Drives            310,760        183,396      4,209      36
       Depository Trust         ESCON        (4) 9032 Directors           1,644,436      1,312,867     33,376      31
       Depository Trust         ESCON        (4) 9032 Directors           1,644,436      1,255,784     33,376      27
         Pitney Bowes           IBM          (1) 3590                     1,846,080      1,026,634     20,045      38
            Lucent              SUN          (1) 4500 Server                184,897        120,701      3,091      36
            Kaiser              IBM          (7) RS 6000                    770,611        560,621     14,928      36
            Kaiser              IBM          (2) RS 170                     209,445        138,149      3,666      36
            Kaiser              CISCO        Routers                         78,172         62,538      1,637      36
           Thomson              EPSON        (16) Powerlite Projectors      146,960         93,002      2,578      36
           Thomson              NORTEL       Network LLXR759                165,000        109,328      4,245      36
     Great Lakes Chemical       CISCO        (100) Routers                  635,385        456,368     12,073      36
             AT&T               NM           Net Ports DS3                   16,288         15,229        435      36
        Datapage Tech           CISCO        Routers                         22,604         20,424        725      34
     Digital Display Tech       ROLLO        Paper Roll System               18,422         16,785        567      36
     Global Routing Tech        DELL         Workstations/Servers            46,698         42,452      1,434      36
         Keller Group           DELL         Workstations/Servers            59,680         53,481      2,016      32
         Keller Group           HP           Servers/Printers                34,210         30,487      1,203   30-31
   Kennedy Assoc/Architects     DELL         Workstations/Servers            52,632         47,598      1,664   31-36
  Missouri Farm Bureau Serv     DELL         Workstations/Servers           265,000        241,616      8,008   36-37
  Missouri Farm Bureau Serv     HP           Workstations/Serv/Printers      12,084         11,817        354      37
  Missouri Farm Bureau Serv     IBM          Servers                         11,034          9,971        364      33
  Patients First Health Care    Micro Sys    Workstations                     2,863          2,605         88      36
    Petnik & Smith Commun.      COMPAQ       Server                          19,215         17,523        642      33
     Provident Counseling       DELL         Workstations                     4,725          4,260        156      33
      The Gannon Company        IBM          Workstations/Server             14,502         11,608        463   24-31
   Tonnercharge of St Louis     HP           Server/Printers                  9,927          7,790        332   20-27
    Union Financial Group       DELL         Workstation                      7,332          5,427        234      22
Vatterott Educational Centers   DELL         Workstations                    43,191         39,084      1,381   34-35
           Thomson              NORTEL       (46) LAN Routers                74,480         49,106      1,369      36
   General Electric Medical     CISCO        Routers                        117,110         69,523      1,856      35
   General Electric Medical     CISCO        Routers                        100,000         65,491      1,762      36
           Thomson              Thermojet    SOP System                      27,430         18,189        710      24
   General Electric Medical     IBM          (15) 4320-001 InfoPrint         64,050         41,996      1,159      36
           Thomson              XEROX        8830 Printer/Plotter            41,280         27,391      1,064      24
            Kaiser              IBM          7017-S85                       147,308        150,254     11,655      36
            Boeing              SUN          280R Sparclil Model            555,663        566,776     14,892      36
            Eq Pkg              Various      Routers/Servers                454,096        454,096     15,940   16-36
   General Electric Medical     CISCO        24 Port Access Server           15,175         15,479        411      36
   General Electric Medical     CISCO        1 Port upgrade                   1,943          1,982         67      30
           Cap Tech             Various      Routers/Servers                458,504        347,833     10,685   25-37
        America Online          SUN          Servers                        836,026        836,026     22,799      35
           JC Penny             NCR          Router                          74,071         74,071      2,249      30
           JC Penny             NCR          Router                         120,767        120,767      3,896      30
       ITT Night Vision         DELL         Workstation                     24,486         24,486      1,084      22
        America Online          SUN          Server                         135,315        135,315      4,474      27
    Budnick Converting Inc      DELL         Workstation                     47,955         47,955      1,370      34
    Datapage Technologies       DELL         Workstations/Printer            10,160         10,160        280      36
  C. Hager & Sons Hinge Mfg     DELL         Workstations                    65,496         65,496      1,875      34
  C. Hager & Sons Hinge Mfg     DELL         Server                          19,036         19,036        549      34
      Paric Corporation         NEC          Monitors                        32,151         32,151      1,267      24
       Rogers Townsend          COMPAQ       Servers                         36,696         36,696      1,006      36
      Retex Corporation         COMPAQ       Workstation                      6,093          6,093        379      14
     Training A-La-Carte        COMPAQ       Workstation                      8,502          8,502        241      35
   General Electric Medical     SUN          Server                          20,000         20,000        521      36
</TABLE>

                                        8
<PAGE>

Reserves

Because the Partnership's leases are on a "triple-net" basis, no permanent
reserve for maintenance and repairs will be established from the Offering
proceeds. However, the General Partner, in its sole discretion, may retain a
portion of the Cash Flow and Net Disposition Proceeds available to the
Partnership for maintenance, repairs and working capital. There are no
limitations on the amount of Cash Flow and Net Disposition Proceeds that may be
retained as reserves. Since no reserve will be established if available Cash
Flow of the Partnership is insufficient to cover the Partnership's operating
expenses and liabilities, it may be necessary for the Partnership to obtain
additional funds by refinancing its Equipment or borrowing.

General Restrictions

         Under the Partnership Agreement, the Partnership is not permitted,
among other things, to:

         (a)      invest in junior trust deeds unless received in connection
                  with the sale of an item of Equipment in an aggregate amount
                  which does not exceed 30% of the assets of the Partnership on
                  the date of the investment;
         (b)      invest in or underwrite the securities of other issuers;
         (c)      acquire any Equipment for Units;
         (d)      issue senior securities (except that the issuance to lenders
                  of notes or other evidences of indebtedness in connection with
                  the financing or refinancing of Equipment or the Partnership's
                  business shall not be deemed to be the issuance of senior
                  securities);
         (e)      make loans to any Person, including the General Partner or any
                  of its Affiliates, except to the extent a Conditional Sales
                  Contract constitutes a loan;

                                        9
<PAGE>

         (f)      sell or lease any Equipment to, lease any Equipment from, or
                  enter into any sale-leaseback transactions with, the General
                  Partner or any of its Affiliates; or
         (g)      give the General Partner or any of its Affiliates an exclusive
                  right or employment to sell the Partnership's Equipment.

The General Partner has also agreed in the Partnership Agreement to use its best
efforts to assure that the Partnership shall not be deemed an "investment
company" as such term is detained in the Investment Company Act of 1940.

The General Partner and its Affiliates may engage in other activities, whether
or not competitive with the Partnership. The Partnership Agreement provides,
however, that neither the General Partner nor any of its Affiliates may receive
any rebate or "give up" in connection with the Partnership's activities or
participate in reciprocal business arrangements that circumvent the restrictions
in the Partnership Agreement against dealings with Affiliates.

EMPLOYEES

The Partnership has no employees and receives administrative and other services
from a related party, CCC, which has 26 employees as of December 31, 2002.

ITEM 2:  PROPERTIES

NOT APPLICABLE

ITEM 3:  LEGAL PROCEEDINGS

                  Commonwealth Capital Corp filed a complaint on December 21,
                  2001 with Avon Products, Inc. with the Federal District Court
                  of the Eastern District of Pennsylvania, No. 01-C2-6915. The
                  complaint alleges that the defendants illegally purchased/sold
                  leased equipment without the Partnership's authorization,
                  along with suing for late fees on various lease payments.

                  In December 2002, the representatives of CCC, along with
                  representatives from El Camino and consultants for Avon, met
                  for a reconciliation meeting. This meeting was designed to
                  reconcile all accounting issues (rentals due) related to the
                  Avon lease. A final reconciliation was not submitted by all
                  parties until around February 15, 2003. At that time, CCC
                  reconciled, via payments histories, the amounts owed by each
                  party. A settlement conference with the judge was then
                  scheduled for March 6, 2003. Prior to the conference, CCC
                  submitted their reconciliation of amounts due. At the
                  conference, a reasonable settlement could not be reached on
                  various issues involved in the litigation. Avon was granted
                  another 90 days for discovery, after which a trial date will
                  be set.

ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

NOT APPLICABLE

PART II

ITEM 5:  MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

There is no public market for the Units nor is it anticipated that one will
develop. As of December 31, 2002, there were 524 holders of Units. The Units are
not listed on any exchange or permitted to trade on any over-the-counter market.
In addition, there are substantial restrictions on the transferability of Units.

                                       10
<PAGE>

GENERAL LIMITATIONS

Units cannot be transferred without the consent of the General Partner, which
may be withheld in its absolute discretion. The General Partner monitors
transfers of Units in an effort to ensure that all transfers are within certain
safe harbors promulgated by the IRS to furnish guidance regarding publicly
traded partnerships. These safe harbors limit the number of transfers that can
occur in any one year. The General Partner intends to cause the Partnership to
comply with the safe harbor that permits nonexempt transfers and redemptions of
Units of up to five percent of the total outstanding interest in the
Partnership's capital or profits in any one year.

REDEMPTION PROVISION

Upon the conclusion of the 30-month period following the termination of the
Offering, the Partnership may, at the sole discretion of the General Partner,
repurchase a number of the outstanding Units. After such 30 month period, on a
semi-annual basis, the General Partner, at its discretion, will establish an
amount for redemption, generally not to exceed two percent of the outstanding
Units per year, subject to the General Partner's good faith determination that
such redemptions will not (a) cause the Partnership to be taxed as a corporation
under Section 7704 of the Code or (b) impair the capital or operations of the
Partnership. (The Partnership may redeem Units in excess of the two percent
limitation if, in the good faith judgment of the General Partner, the conditions
imposed in the preceding sentence would remain satisfied.) The redemption price
for Units will be 105% of the selling Limited Partner's Adjusted Capital
Contributions attributable to the Units for sale. Following the determination of
the annual redemption amount, redemptions will occur on a semi-annual basis and
all requests for redemption, which must be made in writing, must be on file as
of the Record Date in which the redemption is to occur. The General Partner will
maintain a master list of requests for redemption with priority being given to
Units owned by estates, followed by IRAs and Qualified Plans. All other requests
will be considered in the order received. Redemption requests made by or on
behalf of Limited Partners who are not affiliated with the General Partner or
its Affiliates will be given priority over those made by Limited Partners who
are affiliated with the General Partner or its Affiliates. All redemption
requests will remain in effect until and unless canceled, in writing, by the
requesting Limited Partner(s).

The Partnership will accept redemption requests beginning 30 months following
the termination of the Offering. There will be no limitations on the period of
time that a redemption request may be pending prior to its being granted.
Limited Partners will not be required to hold their interest in the Partnership
for any specified period prior to their making a redemption request.

In order to make a redemption request, Limited Partners will be required to
advise the General Partner in writing of such request. Upon receipt of such
notification, the Partnership will provide detailed forms and instructions to
complete the request.

EXEMPT TRANSFERS

The following six categories of transfers are exempt transfers for purposes of
calculating the volume limitations imposed by the IRS and will generally be
permitted by the General Partner:

         (1)      transfers in which the basis of the Unit in the hands of the
                  transferee is determined, in whole or in part, by reference to
                  its basis in the hands of the transferor (for example, Units
                  acquired by corporations in certain reorganizations,
                  contributions to capital, gifts of Units, Units contributed to
                  another partnership, and no liquidating as well as liquidating
                  distributions by a parent partnership to its partners of
                  interests in a sub partnership);
         (2)      transfers at death;

                                       11
<PAGE>

         (3)      transfers between members of a family (which include brothers
                  and sisters, spouse, ancestors, and lineal descendants);
         (4)      transfers resulting from the issuance of Units by the
                  Partnership in exchange for cash, property, or services;
         (5)      transfers resulting from distributions from Qualified Plans;
                  and
         (6)      any transfer by a Limited Partner in one or more transactions
                  during any 30-day period of Units representing in the
                  aggregate more than five percent of the total outstanding
                  interests in capital or profits of the Partnership.

ADDITIONAL RESTRICTIONS ON TRANSFER

Limited Partners who wish to transfer their Units to a new beneficial owner are
required to pay the Partnership up to $50 for each transfer to cover the
Partnership's cost of processing the transfer application and take such other
actions and execute such other documents as may be reasonably requested by the
General Partner. There is no charge for re-registration of a certificate in the
event of a marriage, divorce, death, or trust so long as the transfer is not a
result of a sale of the Units.

In addition, the following restrictions apply to each transfer: (i) no transfer
may be made if it would cause 25% or more of the outstanding Units to be owned
by benefit plans; and (ii) no transfer is permitted unless the transferee
obtains such governmental approvals as may reasonably be required by the General
Partner, including without limitation, the written consents of the Pennsylvania
Securities Commissioner and of any other state securities agency or commission
having jurisdiction over the transfer.

ALLOCATION AND DISTRIBUTION BETWEEN THE GENERAL PARTNER AND THE LIMITED PARTNERS

Cash distributions, if any, are made quarterly on March 31, June 30, September
30 and December 31, of each year. Distributions are made 99% to the Limited
Partners and one percent to the General Partner until the Limited Partners have
received an amount equal to their Capital Contributions plus the Priority
Return; thereafter, cash distributions will be made 90% to Limited Partners and
10% to the General Partner. Distributions made in connection with the
liquidation of the Partnership or a Partner's Units will be made in accordance
with the Partner's positive Capital Account balance as determined under the
Partnership Agreement and Treasury Regulations.

The Priority Return is calculated on the Limited Partners' Adjusted Capital
Contributions for their Units. The Adjusted Capital Contributions will initially
be equal to the amount paid by the Limited Partners for their Units. If
distributions at any time exceed the Priority Return, the excess will reduce the
Adjusted Capital Contributions, decreasing the base on which the Priority Return
is calculated.

If the proceeds resulting from the sale of any Equipment are reinvested in
Equipment, sufficient cash will be distributed to the Partners to pay the
additional federal income tax resulting from such sale for a Partner in a 39.6%
federal income tax bracket or, if lower, the maximum federal income tax rate in
effect for individuals for such taxable year.

Generally, the General Partner is allocated Net Profits equal to its cash
distributions (but not less than one percent of Net Profits) and the balance is
allocated to the Limited Partners. Net Profits arising from transactions in
connection with the termination or liquidation of the Partnership are allocated
in the following order: (1) First, to each Partner in an amount equal to the
negative amount, if any, of his Capital Account; (2) Second, an amount equal to
the excess of the proceeds which would be distributed to the Partners based on
the Operating Distributions to the Partners over the aggregate Capital Accounts
of all the Partners, to the Partners in proportion to their respective shares of
such excess, and (3) Third, with respect to any remaining Net Profits, to the
Partners in the same proportions as if the distributions were Operating
Distributions. Net Losses, if any, are in all cases allocated 99% to the Limited
Partners and one percent to the General Partner.

Net Profits and Net Losses are computed without taking into account, in each
taxable year of the Partnership, any items of income, gain, loss or deduction
required to be specially allocated pursuant to Section 704(b) of the Code and
the Treasury Regulation promulgated there under. No Limited Partner is required
to contribute cash to the capital of the Partnership in order to restore a
closing Capital Account deficit, and the General Partner has only a limited
deficit restoration obligation under the Partnership Agreement.

                                       12
<PAGE>

Quarterly distributions in the following amounts were declared and paid to the
Limited Partners during 2002, 2001 and 2000.

         Quarter Ended           2002         2001         2000
         ---------------------------------------------------------
         March 31             $  171,428   $  228,600   $  228,600
         June 30                 114,286      228,600      228,599
         September 30            114,286      228,229      228,625
         December 31             114,286           -       228,600
                           ---------------------------------------
                              $  514,286   $  685,429   $  914,424
                              ==========   ==========   ==========

ALLOCATIONS AND DISTRIBUTIONS AMONG THE LIMITED PARTNERS

Except during the Offering Period, Cash Available for Distribution, which is
allocable to the Limited Partners, is apportioned among and distributed to them
solely with reference to the number of Units owned by each as of the Record Date
for each such distribution. During the Offering Period, Cash Available for
Distribution which is allocable to the Limited Partners was apportioned among
and distributed to them with reference to both (i) the number of Units owned by
each as of each Record Date and (ii) the number of days since the previous
Record Date (or, in the case of the first Record Date, the commencement of the
Offering Period) that the Limited Partner owned the Units.

After the Offering Period, Net Profits, Net Losses and Cash Available for
Distribution allocable to the Limited Partners is apportioned among them in
accordance with the number of Units owned by each. A different convention was
utilized during the Offering Period, whereby Net Profits and Net Losses
allocable to Limited Partners were apportioned among them in the ratio which the
product of the number of Units owned by a Limited Partner multiplied by the
number of days in which the Limited Partner owns such Units during the period
bears to the sum of such products for all Limited Partners.

In addition, where a Limited Partner transfers Units during a taxable year, the
Limited Partner may be allocated Net Profits for a period for which such Limited
Partner does not receive a corresponding cash distribution.

ITEM 6:  SELECTED FINANCIAL DATA

The following table sets forth, in summary form, selected financial data for the
Partnership for each of the five years ended December 31, 2002. This table is
qualified in its entirely by the more detailed information and financial
statements presented elsewhere in this report, and should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes thereto included
herein.

<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31,
                        ------------------------------------------------------------------------------------
                            2002              2001              2000              1999              1998
                        ------------      ------------      ------------      ------------      ------------
<S>                     <C>               <C>               <C>               <C>               <C>
Lease Income            $  2,711,579      $  3,014,643      $  4,105,811      $  4,598,009      $  4,212,862
                        ------------      ------------      ------------      ------------      ------------
Net (Loss) Income           (251,242)          422,762          (369,209)         (379,337)         (433,744)
                        ------------      ------------      ------------      ------------      ------------
   Cash Distributions        519,480           692,269           923,546           891,690           932,964
                        ------------      ------------      ------------      ------------      ------------
 Net (Loss) Income
   per Limited Partner
   Unit                        (0.55)             0.90             (0.82)            (0.84)            (0.96)
                        ------------      ------------      ------------      ------------      ------------
   Cash Distribution
     per Limited
     Partner Unit               1.12              1.50              1.98              1.90              2.02
                        ------------      ------------      ------------      ------------      ------------
</TABLE>

                                       13
<PAGE>

<TABLE>
<CAPTION>
                                                        AS OF DECEMBER 31,
                        -------------------------------------------------------------------------------------
                          2002              2001              2000              1999                1998
                        ------------      ------------      ------------      ------------      -------------
<S>                     <C>               <C>               <C>               <C>               <C>
Total Assets            $  3,592,482      $  4,859,360      $  4,387,648      $  7,456,422      $  10,232,970
                        ------------      ------------      ------------      ------------      -------------
Notes Payable              1,780,299         2,380,383         1,665,816         3,326,191          4,769,529
                        ------------      ------------      ------------      ------------      -------------
Partners' Capital          1,532,014         2,306,900         2,586,984         3,879,739          5,150,766
                        ------------      ------------      ------------      ------------      -------------
</TABLE>

Net income (loss) per unit is computed based upon net income (loss) allocated to
the Limited Partners and the weighted average number of equivalent Units
outstanding during the year. Cash distribution per Unit is computed based upon
distributions allocated to the Limited Partners and the weighted average number
of equivalent Units outstanding during the year.

ITEM 7:  MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Our significant accounting policies are described in Note
1 of the Notes to the Financial Statements. The significant accounting policies
that we believe are the most critical to aid in fully understanding our reported
financial results include the following:

COMPUTER EQUIPMENT

CCC, on behalf of the Partnership and other affiliated partnerships, acquires
computer equipment subject to associated debt obligations and lease agreements
and allocates a participation in the cost, debt and lease revenue to the various
partnerships based on certain risk factors.

                                       14
<PAGE>

REVENUE RECOGNITION

Through December 31, 2002, the Partnership's leasing operations consist
substantially of operating leases and six direct financing leases. Operating
lease revenue is recognized on a monthly basis in accordance with the terms of
the lease agreement. Unearned revenue from direct financing agreements is
amortized to revenue over the lease term.

The Partnership reviews a customer's credit history extending credit and
establishes a provision for uncollectible accounts receivable based upon the
credit risk of specific customers, historical trends and other information.

LONG-LIVED ASSETS

The Partnership evaluates its long-lived assets when events or circumstances
indicate that the value of the asset may not be recoverable. The Partnership
determines whether impairment exists by estimating the undiscounted cash flows
to be generated by each asset. If the estimated undiscounted cash flows are less
than the carrying value of the asset then impairment exists. The amount of the
impairment is determined based on the difference between the carrying value and
the fair value. Fair value is determined based on estimated discounted cash
flows to be generated by the asset.

Depreciation on computer equipment for financial statement purposes is based on
the straight-line method over estimated useful lives of four years.

LIQUIDITY AND CAPITAL RESOURCES

The Partnership satisfied its minimum offering requirements and commenced
operations on September 22, 1995.

For the year ended December 31, 2002, the Partnership generated cash flow from
operating activities of $480,000, which includes a net loss of $206,000 and gain
on the sale of computer equipment of $1,000, reduced by depreciation and
amortization expenses of $1,704,000. Other noncash activities included in the
determination of net income include direct payments of lease income by lessees
to banks of $1,150,000.

The Partnership's primary sources of capital for the years ended December 31,
2002, 2001 and 2000 were from cash from operations of $480,000, $1,149,000 and
$857,000, and proceeds from the sale of computer equipment of $134,000, $409,000
and $431,000, respectively. The primary uses of cash for the years ended
December 31, 2002, 2001 and 2000, were for capital expenditures for new
equipment totaling $97,000, $677,000 and $98,000, the payment of acquisition
fees of $ 24,000, $106,000 and $33,000, an advance to CCC in the amount of
$315,000 for the year ended December 31, 2001, and the payment of preferred
distributions to partners totaling $519,000, $692,000 and $924,000,
respectively.

Cash is invested in money market accounts that invest directly in treasury
obligations pending the Partnership's use of such funds to purchase additional
computer equipment, to pay Partnership expenses or to make distributions to the
Partners. At December 31, 2002 and 2001 the Partnership had approximately
$24,000 and $14,000, respectively, invested in these money market accounts.

As of December 31, 2002, the Partnership has a receivable from CCC, a related
party to the Partnership, in the amount of approximately $307,000. CCC, through
its indirect subsidiaries, including the General Partner of the Partnership,
earns fees based on revenues and new lease purchases from this fund and other
funds. This is a non-interest bearing receivable that CCC intends to repay over
the next three fiscal years from acquisition and debt placement fees earned by
the General Partner of the Partnership, as well as agreeing to pay approximately
$5,000 per month commencing January 1, 2003.

                                       15
<PAGE>

The Partnership's investment strategy of acquiring computer equipment and
generally leasing it under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses. As
of December 31, 2002, the Partnership had future minimum rentals on
noncancellable operating leases of $1,278,000 for the year ended 2003 and
$766,000 thereafter. As of December 31, 2002, the Partnership had future minimum
rentals on noncancellable capital leases of $67,000 for the year ended 2003 and
$169,000 thereafter. During 2002 and 2001, the Partnership incurred debt in
connection with the purchase of computer equipment totaling $504,000 and
$1,967,000, respectively. At December 31, 2002, the outstanding debt was
$1,780,000, with interest rates ranging from 5.95% to 9.75% and will be payable
through June 2006. The Partnership intends to continue purchasing additional
computer equipment with existing cash, as well as when future cash becomes
available. In addition, the Partnership may incur debt in purchasing computer
equipment in the future.

CCC, on behalf of the Partnership and other affiliated partnerships, acquires
computer equipment subject to associated debt obligations and lease agreements
and allocates a participation in the cost, debt and lease revenue to the various
partnerships based on certain risk factors. The Partnership's share of the
computer equipment in which they participate at December 31, 2002 and 2001 was
approximately $3,211,000 and $3,012,000, respectively, which is included in the
Partnership's fixed assets on their balance sheet, and the total cost of the
equipment shared by the Partnership with other partnerships at December 31, 2002
and 2001 was approximately $6,294,000 and $5,650,000, respectively. The
Partnership's share of the outstanding debt associated with this equipment at
December 31, 2002 and 2001 was approximately $1,103,000 and $1,581,000,
respectively, which is included in the Partnership's liabilities on the balance
sheet, and the total outstanding debt at December 31, 2002 and 2001 related to
the equipment shared by the Partnership was approximately $1,956,000 and
$2,406,000, respectively.

The Partnership's cash flow from operations is expected to continue to be
adequate to cover all operating expenses, liabilities, and preferred
distributions to Partners during the next 12-month period. If available Cash
Flow or Net Disposition Proceeds are insufficient to cover the Partnership
expenses and liabilities on a short and long term basis, the Partnership will
attempt to obtain additional funds by disposing of or refinancing Equipment, or
by borrowing within its permissible limits. The Partnership may also reduce the
distributions to its Partners if it deems necessary. Since the Partnership's
leases are on a "triple-net" basis, no reserve for maintenance and repairs are
deemed necessary.

RESULTS OF OPERATIONS

For the years ended December 31, 2002, 2001 and 2000, the Partnership recognized
income of $2,714,000, $3,319,000 and $4,117,000 and expenses of $2,920,000,
$2,896,000 and $4,486,000, resulting in net losses for the years ended December
31, 2002 and 2000 of $206,000 and $369,000, respectively, and net income of
$423,000 for the year ended December 31, 2001.

Lease income decreased by 10% in 2002 from 2001 primarily due to more operating
leases maturing in 2002 than new leases entered into.

Interest income decreased by 78% to $2,000 for the year ended December 31, 2002
from $9,000 for the year ended December 31, 2001, and $11,000 for the year ended
December 31, 2000 as a result of rental income being used to purchase additional
computer equipment as well as paying distributions to the partners.

The Partnership sold computer equipment during the year ended December 31, 2002,
2001 and 2000 with a net book value of $134,000, $113,000 and $569,000,
respectively, for a net gain of $1,000 and $295,000 in 2002 and 2001,
respectively, and a net loss of $138,000 in 2000.

Operating expenses, excluding depreciation, consist of accounting, legal,
outside service fees and reimbursement of expenses to CCC, for administration
and operation of the Partnership. These expenses increased by 59 % to $571,000,
up from $360,000 during the year ended December 31, 2001 and $241,000 during the
year ended December 31, 2000. This increase is primarily attributable to
reimbursable expenses in connection with the administration and operation of the
Partnership charged by CCC, increasing by approximately $97,000, remarketing
fees paid to brokers increasing by approximately $30,000, postage and shipping
costs increasing by approximately $9,000, conventions increasing by
approximately $11,000, legal fees increasing by approximately $32,000, equipment
shipping costs increasing by approximately $4,000, accounting fees increasing by
approximately $7,000 and due diligence of approximately $22,000.

                                       16
<PAGE>

The equipment management fee is approximately 5% of the gross lease revenue
attributable to equipment that is subject to operating and capital leases. The
equipment management fee decreased to $136,000 during the year ended December
31, 2002 from $151,000 during the year ended December 31, 2001 and $222,000,
during the year ended December 31, 2000, which is consistent with the change in
lease income.

Depreciation and amortization expenses consist of depreciation on computer
equipment, amortization of organization costs (for 2000 only), equipment
acquisition fees and debt placement fees. The 25% decrease to $1,704,000 during
the year ended December 31, 2002 from $2,270,000 and $3,680,000 during the year
ended December 31, 2001 and 2000, respectively, is attributable to the decrease
in the computer equipment portfolio being leased.

The Partnership has recorded $399,000, $9,000 and $45,000 as allowances against
accounts receivable for the periods ending December 31, 2002, 2001 and 2000,
respectively. The increase in 2002 is due to the Avon lawsuit discussed in
Part I, Item 3.

The Partnership identified specific computer equipment and associated equipment
acquisition costs, which were reevaluated due to technological changes. In 2001,
the Partnership determined that the carrying amount of certain assets was
greater than the undiscounted cash flows to be generated by these assets. The
Partnership recorded charges of $100,000 in the fourth quarter of 2001 to record
the assets at their estimated fair value. Such amounts have been included in
depreciation expense in the accompanying financial statements. In 2002 and 2000,
the Partnership determined that no impairment had occurred.

For the periods ended December 31, 2002 and 2001, the Partnership has a
receivable from CCC, a related party to the Partnership, in the amount of
approximately $307,000 and $315,000, respectively. CCC, through its indirect
subsidiaries, including the General Partner of the Partnership, earns fees based
on revenues and new lease purchases from this fund and other funds.

NET INCOME / LOSS

         Net income decreased to a net loss of $251,000 in 2002 from net income
of $423,000 in 2001 and a net loss of $369,000 in 2000.

         The changes in net income (loss) were attributable to the changes in
revenues and expenses as discussed above.

                        RECENT ACCOUNTING PRONOUNCEMENTS

                                     FIN 45

         In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others" ("Interpretation No. 45"). This
Interpretation elaborates on the existing disclosure requirements for most
guarantees, including loan guarantees such as standby letters of credit. It also
clarifies that at the time a company issues a guarantee, the company must
recognize an initial liability for the fair market value of the obligations it
assumes under that guarantee and must disclose that information in its interim
and annual financial statements. The initial recognition and measurement
provisions of Interpretation No. 45 apply on a prospective basis to guarantees
issued or modified after December 31, 2002. The adoption of Interpretation No.
45 is not expected to have a material impact on the Company's results of
operations, financial position or cash flows.

                                       17
<PAGE>

                                    SFAS 144

         In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of. However, the Statement retains the
fundamental provisions of Statement 121 for (a) recognition and measurement of
the impairment of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of by sale.

         This Statement supersedes the accounting and reporting provisions of
APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a segment of a business.
However, this Statement retains the requirement of Opinion 30 to report
discontinued operations separately from continuing operations and extends that
reporting to a component of an entity that either has been disposed of (by sale,
by abandonment, or in distribution to owners) or is classified as held for sale.
This Statement also amends ARB No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidation for a temporarily controlled
subsidiary.

         The provisions of this Statement are effective for financial statements
issued for fiscal years beginning after December 15, 2001, and interim periods
within those fiscal years, with earlier application encouraged. The provisions
of this Statement generally are to be applied prospectively. The adoption of the
Statement on January 1, 2002, did not have a material impact on earnings

                                    SFAS 146

         On July 30, 2002, the FASB issued FASB Statement No. 146, Accounting
for Costs Associated with Exit or Disposal Activities, which nullifies EITF
Issues No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
an a Restructuring)" and No. 88-10, Costs Associated with Lease Modification or
Termination." Statement 146 fundamentally changed how a company should account
for future "restructurings." The Partnership believes that the adoption of SFAS
146 will not have an impact on its financial position and results of operations.

ITEM 7.A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Partnership believes its exposure to market risk is not material
due to the fixed interest rate of its long- term debt and its associated fixed
revenue streams.

ITEM 8:  FINANCIAL STATEMENTS

         See financial statements commencing in Part IV Item 14.

ITEM 9:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         NONE

PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

                                       18
<PAGE>

GENERAL

         The General Partner, a wholly owned subsidiary of Commonwealth of
Delaware, Inc., a Delaware corporation, which is in turn a wholly-owned
subsidiary of CCC, a Pennsylvania corporation, was incorporated in Pennsylvania
on August 26, 1993. The General Partner also acts as the General Partner for
Commonwealth Income and Growth Fund I and Commonwealth Income and Growth Fund
II. The principal business office of the General Partner is 470 John Young Way,
Suite 300, Exton, PA 19341, and its telephone number is 610-594-9600. The
General Partner manages and controls the affairs of the Partnership and has sole
responsibility for all aspects of the Partnership's operations. The officers of
the General Partner devote such time to the affairs of the Partnership as in the
opinion of the General Partner is necessary to enable it to perform its function
as General Partner. The officers of the General Partner are not required to
spend their full time in meeting their obligations to the Partnership.

         The directors and officers of the General Partner and key employees of
CCC are as follows:

NAME                       TITLE
----                       -----
George S. Springsteen      Chairman of the Board of Directors and President of
                           the General Partner and CCC

Kimberly A. Springsteen    Executive Vice President, Chief Operating Officer and
                           Secretary of the General Partner and CCC

Henry J. Abbott            Senior Vice President and Portfolio Manager of CCC

Salvatore R. Barila        Vice President and Controller of the General Partner
                           and CCC

Lynn Franceschina          Vice President and Accounting Manager of the General
                           Partner and CCC

Dorothy A. Ferguson        Assistant Vice President of CCC

         George S. Springsteen, age 68, is President of both CCC and the General
Partner. Mr. Springsteen is also President of the general partners or
controlling entities of several prior programs sponsored by CCC with objectives
similar to the Partnership's. He has been the sole shareholder and director of
CCC since its formation in 1978. From 1971 to 1978, Mr. Springsteen was involved
in the computer leasing business of Granite Computer Corporation. Mr.
Springsteen served as Vice President of Marketing, in addition to other
capacities, and managed a portfolio of approximately $120,000,000 of IBM
computers and peripherals. In 1978, Granite Computer Corporation sold its
equipment portfolio and left the equipment leasing business. Mr. Springsteen
acquired a portion of Granite's portfolio, client base, employees and corporate
offices in Jenkintown, Pennsylvania. The new company began operations as CCC in
May of 1978. Mr. Springsteen received a Bachelor of Science degree from the
University of Delaware in 1957.

         Kimberly A. Springsteen, age 43, is Executive Vice President, Chief
Operating Officer and Secretary of CCC and the General Partner and joined CCC in
1997. She is also the President of Commonwealth Capital Securities Corp. From
1980 to 1997, Ms. Springsteen was employed with Wheat First Butcher Singer, a
broker/dealer headquartered in Richmond, Virginia. While at Wheat First Butcher
Singer, Ms. Springsteen, Senior Vice President, served as Marketing Manager for
the Direct Investments Department, with over $450,000,000 of investments under
management in real estate, equipment leasing and energy-related industries. Ms.
Springsteen holds Series 7, 63 and 39 NASD licenses and is a member of the
Equipment Leasing Association, Investment Partnership Association, and
International Association for Financial Planning.

         Henry J. Abbott, age 52, is Senior Vice President and Portfolio Manager
of CCC and has been employed by CCC since 1998. Mr. Abbot has been active in the
commercial lending industry, working primarily on asset-backed transactions for
more than twenty-seven years. Prior to joining CCC, Mr. Abbott was a founding
partner of Westwood Capital LLC, in New York. Prior to that, as Senior Vice
President for IBJ Schroder Leasing Corporation where Mr. Abbott managed a group
specializing in providing operating lease financing programs in the high
technology sector. Mr. Abbott brings extensive knowledge and experience in all
facets of asset-backed financing and has successfully managed $1.5 billion of
secured transactions. Mr. Abbott attended St. John's University. Mr. Abbott is a
member of the Equipment Leasing Association.

                                       19
<PAGE>

         Salvatore R. Barila, age 32, is Vice President and Controller of the
General Partner and CCC and certain of its subsidiaries where he has been
employed since 2000. From 1992 to 2000, Mr. Barila was employed as Corporate
Accounting Manager of RCG Information Technology, Inc. Mr. Barila received a
B.B.A. degree in Accounting from Pace University in 1992. Mr. Barila is a member
of the Equipment Leasing Association.

         Lynn A. Franceschina, age 31, is Vice President and Accounting Manager
of the General Partner and CCC and certain of its subsidiaries where she has
been employed since 2001. From 1991 to 2001, Ms. Franceschina worked as an
Accountant, most recently as the Business Controls Manager at Liquent, Inc. Ms.
Franceschina received a B.S.B.A. degree from Robert Morris College. Ms.
Franceschina is a member of the Equipment Leasing Association.

         Dorothy A. Ferguson, age 60, is Assistant Vice President of CCC and has
been employed by CCC since 1995. She brought with her over 20 years experience
in commercial banking and finance. Prior to joining Commonwealth, she held
positions as a Banking Officer and Administrative Assistant to the Chairman of a
large Philadelphia based bank, as well as Executive Secretary to the CEO of an
international manufacturing management group.

         The directors and officers of the General Partner are required to spend
only such time on the Partnership's affairs as is necessary in the sole
discretion of the directors of the General Partner for the proper conduct of the
Partnership's business. A substantial amount of time of such directors and
officers is expected to be spent on matters unrelated to the Partnership,
particularly after the Partnership's investments have been selected. Under
certain circumstances, such directors and officers are entitled to
indemnification from the Partnership.

ITEM 11: EXECUTIVE COMPENSATION

         The following table summarizes the types, amounts and recipients of
compensation to be paid by the Partnership directly or indirectly to the General
Partner and its Affiliates. Some of these fees are paid regardless of the
success or profitability of the Partnership's operations and investments. While
such compensation and fees were established by the General Partner and are not
based on arm's-length negotiations, the General Partner believes that such
compensation and fees are comparable to those that would be charged by an
unaffiliated entity or entities for similar services. The Partnership Agreement
limits the liability of the General Partner and its Affiliates to the
Partnership and the Limited Partners and provides indemnification to the General
Partner and its Affiliates under certain circumstances.

                                       20
<PAGE>

<TABLE>
<CAPTION>
                                                                                         AMOUNT           AMOUNT          AMOUNT
        ENTITY                                                                          INCURRED         INCURRED        INCURRED
      RECEIVING
    COMPENSATION                       TYPE OF COMPENSATION                            DURING 2002      DURING 2001     DURING 2000
                                 OFFERING AND ORGANIZATION STAGE
<S>                                                                                     <C>              <C>              <C>
The General Partner     Organizational   Fee.  An   Organization                              $0               $0              $0
                        Fee equal to three  percent of the first
                        $10,000,000 of Limited Partners' Capital Contributions
                        and two percent of the Limited Partners' Capital
                        Contribution in excess of $10,000,000, as compensation
                        for the organization of the Partnership. It is
                        anticipated that all Organizational and Offering
                        Expenses which include legal, accounting and printing
                        expenses; various registration and filing fees;
                        miscellaneous expenses related to the organization and
                        formation of the Partnership; other costs of
                        registration; and costs incurred in connection with the
                        preparation, printing and distribution of this Report
                        and other sales literature. The General Partner pays all
                        Organizational and Offering Expenses, other than
                        Underwriter's Commissions and a non-accountable expense
                        allowance payable to the Dealer Manager that is equal to
                        the lesser of (i) one percent of the Offering proceeds
                        or (ii) $50,000.

                              OPERATIONAL AND SALE OR LIQUIDATION STAGES

The General Partner     Reimbursement  of Expenses.  The General                        $246,000         $148,000         $91,000
and its Affiliates      and its Affiliates  Partner are entitled
                        to reimbursement by the Partnership for the cost of
                        goods, supplies or services obtained and used by the
                        General Partner in connection with the administration
                        and operation of the Partnership from third parties
                        unaffiliated with the General Partner. In addition, the
                        General Partner and its affiliates are entitled to
                        reimbursement of certain expenses incurred by the
                        General Partner and its affiliates in connection with
                        the administration and operation of the Partnership. The
                        amounts set forth on this table do not include expenses
                        incurred in the offering of Units.

The General Partner     Equipment  Acquisition Fee. An Equipment Acquisition             $24,000         $106,000         $33,000
                        Fee of four percent of the Purchase Price of each item
                        of Equipment purchased as compensation for the
                        negotiation of the acquisition of the Equipment and the
                        lease thereof or sale under a Conditional Sales
                        Contract. The fee was paid upon each closing of the
                        Offering with respect to the Equipment purchased by the
                        Partnership with the net proceeds of the Offering
                        available for investment in Equipment. If the
                        Partnership acquires Equipment in an amount exceeding
                        the net proceeds of the Offering available for
                        investment in Equipment, the fee will be paid when such
                        Equipment is acquired.

The General Partner     Debt Placement Fee. As compensation  for arranging                $5,000          $20,000          $7,000
                        Term Debt to finance the acquisition of Equipment to the
                        Partnership, a fee equal to one percent of such
                        indebtedness; provided, however, that such fee is
                        reduced to the extent the Partnership incurs such fees
                        to third Parties, un affiliated with the General Partner
                        or the lender, with respect to such indebtedness and no
                        such fee is paid with respect to borrowings from the
                        General Partner or its Affiliates.
</TABLE>

                                       21
<PAGE>

<TABLE>
<S>                                                                                     <C>              <C>             <C>
The General Partner     Equipment  Management Fee. A monthly fee equal to the           $136,000         $151,000        $222,000
                        lesser of (I) the fees which would be charged by an
                        independent third party for similar services for similar
                        equipment or (ii) the sum of (a) two percent of (1) the
                        Gross Lease Revenues attributable to Equipment which is
                        subject to Full Payout Net Leases which contain net
                        lease provisions plus (2) the purchase price paid on
                        Conditional Sales Contracts as received by the
                        Partnership and (b) five percent of the Gross Lease
                        Revenues attributable to Equipment which is subject to
                        Operating Leases.

The General Partner     Re-Lease   Fee.  As   Compensation   for providing                    $0               $0              $0
                        re-leasing services for any Equipment for which the
                        General Partner has, following the expiration of, or
                        default under, the most recent lease of Conditional
                        Sales Contract, arranged a subsequent lease of
                        Conditional Sales Contract for the use of such Equipment
                        to a lessee or other party, other than the current or
                        most recent lessee of other operator of such equipment
                        or its Affiliates ("Re-lease"), the General Partner will
                        receive, on a monthly basis, a Re3-lease Fee equal to
                        the lesser of (a) the fees which would be charged by an
                        independent third party of comparable services for
                        comparable equipment or (b) two percent of Gross Lease
                        Revenues derived from such Re-lease.

The General Partner     Equipment  Liquidation Fee. With respect to each                      $0               $0              $0
                        item of Equipment sold by the General Partner (other
                        than in connection with a Conditional Sales Contract), a
                        fee equal to the lesser of (I) 50% of the Competitive
                        Equipment Sale Commission or (ii) three percent of the
                        sales price for such Equipment. The payment of such fee
                        is subordinated to the receipt by the Limited Partners
                        of (I) a return of their Capital Contributions and 10%
                        annum cumulative return, compounded daily, on Adjusted
                        Capital Contributions ("Priority Return") and (ii) the
                        Net Disposition Proceeds from such sale in accordance
                        with the Partnership Agreement. Such fee is reduced to
                        the extent any liquidation or resale fees are paid to
                        unaffiliated parties.

The General Partner     Partnership   Interest.    The   General Partner                  $5,194           $6,840          $9,122
                        has a present and continuing one percent interest of
                        $1,000 in the Partnership's item of income, gain, loss,
                        deduction, credit, and tax preference. In addition, the
                        General Partner receives one percent of Cash Available
                        for Distribution until the Limited Partners have
                        received distributions of Cash Available for
                        Distribution equal to their Capital Contributions plus
                        the 10% Priority Return and thereafter, the General
                        Partner will receive 10% of Cash Available for
                        Distribution.
</TABLE>

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         NOT APPLICABLE

                                       22
<PAGE>

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Partnership is subject to various conflicts of interest arising out
of its relationships with the General Partner and its Affiliates. These
conflicts include the following:

COMPETITION WITH GENERAL PARTNER AND AFFILIATES: COMPETITION FOR MANAGEMENT'S
TIME

         The General Partner and its Affiliate sponsor other investor programs,
which are in potential competition with the Partnership in connection with the
purchase of Equipment as well as opportunities to lease and sell such Equipment.
Competition for Equipment has occurred and is likely to occur in the future. The
General Partner and its Affiliates may also form additional investor programs,
which may be competitive with the Partnership.

         If one or more investor programs and the Partnership are in a position
to acquire the same Equipment, the General Partner will determine which program
will purchase the Equipment based upon the objectives of each and the
suitability of the acquisition in light of those objectives. The General Partner
will generally afford priority to the program or entity that has had funds
available to purchase Equipment for the longest period of time. If one or more
investor programs and the Partnership are in a position to enter into lease with
the same lessee or sell Equipment to the same purchaser, the General Partner
will generally afford priority to the Equipment which has been available for
lease or sale for the longest period of time.

         Certain senior executives of the General Partner and its Affiliates
also serve as officers and directors of the other programs and are required to
apportion their time among these entities. The Partnership is, therefore, in
competition with the other programs for the attention and management time of the
General Partner and Affiliates. The officers and directors of the General
Partner are not required to devote all or substantially all of their time to the
affairs of the Partnership.

ACQUISITIONS

         CCC and the General Partner or other Affiliates of the General Partner
may acquire Equipment for the Partnership provided that (i) the Partnership has
insufficient funds at the time the Equipment is acquired, (ii) the acquisition
is in the best interest of the partnership and (iii) no benefit to the General
Partner or its Affiliates arises from the acquisition except for compensation
paid to CCC, the General Partner or such other Affiliate as disclosed in this
Report. CCC, the General Partner or their Affiliates will not hold Equipment for
more than 60 days prior to transfer to the Partnership. If sufficient funds
become available to the Partnership within such 60 day period, such Equipment
may be resold to the Partnership for a price not in excess of the sum of the
cost of the Equipment to such entity and any accountable Acquisition Expenses
payable to third parties which are incurred by such entity and interest on the
Purchase Price from the date of purchase to the date of transfer to the
Partnership. CCC, the General Partner or such other Affiliate will retain any
rent or other payments received for the Equipment, and bear all expenses and
liabilities, other than accountable Acquisition Expenses payable to third
parties with respect to such Equipment, for all periods prior to the acquisition
of the Equipment by the Partnership. Except as described above, there will be no
sales of Equipment to or from any Affiliate of CCC.

         In certain instances, the Partnership may find it necessary, in
connection with the ordering and acquisition of Equipment, to make advances to
manufacturers or vendors with funds borrowed from the General Partner for such
purpose. The Partnership does not borrow money from the General Partner or any
of its Affiliates with a term in excess of twelve months. Interest is paid on
loans or advances (in the form of deposits with manufacturers or vendors of
Equipment or otherwise) from the General Partner of its Affiliates from their
own funds at a rate equal to that which would be charged by third party
financing institutions on comparable loans from the same purpose in the same
geographic area, but in no event in excess of the General Partner's or
Affiliate's own cost of funds. In addition, if the General Partner or its
Affiliates borrow money and loan or advance it on a short-term basis to or on
behalf of the Partnership, the General Partnership than that which the General
Partner or such Affiliates are paying. The Partnership does not loan money to
any Person including the General Partner or its Affiliates except to the extent
that a Conditional Sales Contract constitutes a loan.

                                       23
<PAGE>

         If the General Partner or any of its Affiliates purchases Equipment in
its own name and with its own funds in order to facilitate ultimate purchase by
the Partnership, the purchaser is entitled to receive interest on the funds
expended for such purchase on behalf of the Partnership. Simple interest on any
such temporary purchases is charged on a floating rate basis not in excess of
three percent over the "prime rate" from time to time announced by PNC Bank,
from the date of initial acquisition to the date of repayment by the
Partnership/ownership transfer.

         The Partnership does not invest in equipment Limited Partnerships,
general partnerships or joint ventures, except that (a) the Partnership may
invest in general partnerships or joint ventures with persons other that
equipment Programs formed by the General Partner or its Affiliates, which
partnerships or joint ventures own specific equipment; provided that (i) the
Partnership has or acquires a controlling interest in such ventures or
partnerships, (ii) the non-controlling interest is owned by a non-Affiliated,
and (iii) the are no duplicate fees; and (b) the Partnership may invest in joint
venture arrangements with other equipment Programs formed by the General Partner
or its Affiliates if such action is in the best interest of all Programs and if
all the following conditions are met: (i) all the Programs have substantially
identical investment objectives; (ii) there are no duplicate fees; (iii) the
sponsor compensation is substantially identical in each Program; (iv) the
Partnership has a right of first refusal to buy another Program's interest in a
joint venture if the other Program wishes to sell equipment held in the joint
venture; (v) the investment of each Program is on substantially the same terms
and conditions; and (vi) the joint venture is formed either for the purpose of
effecting appropriated diversification for the Programs or for the purpose of
relieving the General Partner or its Affiliates from a commitment entered into
pursuant to certain provisions of the Partnership Agreement.

         GLOSSARY

     The following terms used in this Report shall (unless otherwise expressly
provided herein or unless the context otherwise requires) have the meanings set
forth below.

     "Acquisition Expenses" means expenses relating to the prospective selection
and acquisition of or investment in Equipment, whether or not actually acquired,
including, but not limited to, legal fees and expenses, travel and communication
expenses, costs of appraisals, accounting fees and expenses and miscellaneous
expenses.

     "Acquisition Fee" means the total of all fees and commissions paid by any
party in connection with the initial purchase of Equipment acquired by the
Partnership. Included in the computation of such fees or commissions shall be
the Equipment Acquisition Fee, any commission, selection fee, construction
supervision fee, finance fee, non-recurring management fee of a similar nature,
however designated.

     "Adjusted Capital Contributions" means Capital Contributions of the Limited
Partners reduced to not less than zero by any cash distribution received by the
Limited Partners pursuant to Sections 4/2 or 8/1, to the extent such
distributions exceed any unpaid Cumulative Return as of the date such
distributions were made.

     "Affiliate" means, when used with reference to a specified Person, (I) any
Person that directly or indirectly through one or more intermediaries controls
or is controlled by or is under common control with the specified Person, (ii)
any Person that is a director or an executive officer of, partner in, or serves
in a similar capacity to, the specified Person, or any Person which the
specified Person is an executive officer of partner or with respect to which the
specified Person serves in a similar capacity, (iii) any Person owning or
controlling 10% or more of the outstanding voting securities of such specified
Person, or (iv) if such Person is an officer, director or partner, any entity
for which such Person acts in such capacity.

     "Capital Account" means the separate account established for each Partner
pursuant to Section 4/.1.

                                       24
<PAGE>

     "Capital Contributions" means, in the case of the General partner, the
total amount of money contributed to the Partnership by the General Partner,
and, in the case of the Limited Partners, $20 for each Unit or where the context
requires, the total Capital Contributions of all the Partners.

     "Capital Leases" are leases under which the Equipment either transfers to
the lessee at the end of the lease term, contains a bargain purchase price
option, the lease term is equal to 75% or more of the estimated economic life of
the Equipment, or the present value at the beginning of the lease term of the
minimum lease payments is equal to or exceeds 90% of the excess of the fair
value of the Equipment.

     "Cash Available for Distribution" means Cash Flow plus net Disposition
Proceeds plus cash funds available for distribution from Partnership reserves,
less such amounts as the General Partner, in accordance with this Agreement,
causes the Partnership to reinvest in Equipment or interests therein, and less
such amounts as the General Partner, in its sole discretion, determines should
be set aside for the restoration or enhancement of Partnership reserves.

     "Cash Flow" for any fiscal period means the sum of (i) cash receipts from
operations, including, but not limited to, rents or other revenues arising from
the leasing or operation of the Equipment and interest, if any, earned on funds
on deposit for the Partnership, but not including Net Disposition Proceeds,
minus (ii) all cash expenses and costs incurred and paid in connection with the
ownership, lease, management, use and/or operation of the Equipment, including,
but not limited to, fees for handling and storage; all interest expenses paid
and all repayments of principal regarding borrowed funds; maintenance; repair
costs; insurance premiums; accounting and legal fees and expenses; debt
collection expenses; charges, assessments or levies imposed upon or against the
Equipment; ad valorem, gross receipts and other property taxes levied against
the Equipment; and all costs of repurchasing Units in accordance with this
Agreement; but not including depreciation or amortization of fees or capital
expenditures, or provisions for future expenditures, including, without
limitation, Organizational and Offering Expenses.

     "Closing Date" means the date, as designated by the General Partner, as of
which the Units shall cease being offered to the public pursuant to the
Offering, and shall be no later than the second anniversary of the Effective
Date.

     "Code" means the Internal Revenue Code of 1986, as amended, and as may be
amended from time to time by future federal tax statues. Any reference this
Agreement to a particular provision of the Code shall mean, where appropriate,
the corresponding provision of any successor statute.

     "Competitive Equipment Sale Commission" means that brokerage fee paid for
services rendered in connection with the purchase or sale of equipment that is
reasonable, customary, and competitive in light of the size, type, and location
of the Equipment.

     "Conditional Sales Contract" means an agreement to sell Equipment to a
buyer in which the seller reserves title to, and retains a security interest in,
the Equipment until the Purchase Price of the Equipment is paid.

     "Cumulative Return" means an amount equal to a return at a rate of 10% per
annum, compounded daily, on the Adjusted Capital Contribution for all
outstanding Units, which amount shall begin accruing at the end of the calendar
quarter in which such Units are sold by the Partnership.

     "Effective Date" means the date on which the Partnership's registration
statement on Form S-1 with respect to the Units, as filed with the Securities
and Exchange Commission, becomes effective under the Securities Act of 1933, as
amended.

     "Equipment" means each item of and all of the computer peripheral and other
similar capital equipment purchased, owned, operated, and/or leased by the
Partnership or in which the Partnership has acquired a direct or indirect
interest, as more fully described in this Agreement, together with all
appliances, parts, instruments, accessories, furnishings, or other equipment
included therein and all substitutions, renewals, or replacements of, and all
additions, improvements, and accessions to, any and all thereof.

                                       25
<PAGE>

     "Full Payout Net Lease" means an initial Net Lease of the Equipment under
which the non-cancelable rental payments due (and which can be calculated at the
commencement of the Net Lease) during the initial noncancellable fixed term (not
including any renewal or extension period) of the lease or other contract for
the use of the Equipment are at least sufficient to recover the Purchase Price
of the Equipment.

     "General Partner" means Commonwealth Income & Growth Fund, Inc. and any
additional, substitute or successor general partner of the Partnership.

     "Gross Lease Revenues" means Partnership gross receipts from leasing or
other operation of the Equipment, except that, to the extent the Partnership has
leased the Equipment from an unaffiliated party, it shall mean such receipts
less any lease expense.

     "Initial Closing " means January 27, 1998.

     "IRA" means an Individual Retirement Account as described in Section 408 of
the Code.

     "Limited Partner" means a Person who acquires Units and who is admitted to
the Partnership as a limited partner in accordance with the terms of this
Agreement.

     "Majority in Interest" means, with respect to the Partnership, Limited
Partners holding more than 40% of the outstanding Units held by all Limited
Partners at the Record Date for any vote or consent of the Limited Partners.

     "Minimum Subscription Amount" means an aggregate of $1,500,000 in
subscriptions from Limited Partners.

     "Net Disposition Proceeds" means the net proceeds realized by the
Partnership from the refinancing, sale or other disposition of Equipment,
including insurance proceeds or lessee indemnity payments arising from the loss
or destruction of Equipment, less such amounts as are used to satisfy
Partnership liabilities.

     "Net Lease" means a lease or other contract under which the owner provides
equipment to a lessee or other operator in return for a payment, and the lessee
assumes all obligations and pays for the operation, repair, maintenance, taxes
and insuring of the Equipment, so that the non-cancelable rental payments under
the lease are absolutely net to the lessor.

     "Net Profits" or "Net Losses" shall be computed in accordance with Section
703(a) of the Code (including all items of income, gain, loss or deduction
required to be stated separately pursuant to Section 703(a) (1) of the Code) for
each taxable year of the Partnership or shorter period or subsequent to an
interim closing of the Partnership's books with the following adjustments: (I)
any income of the Partnership that is exempt from federal income tax and not
otherwise taken into account in computing Net Profits and Net Loss pursuant to
this definition shall be added to such taxable income of shall reduce such
taxable loss; (ii) any expenditure of the Partnership described in Code Section
705(a) (2) (B) or treated as Code Section 705(a) (2) (B) expenditures pursuant
to Treasury Regulations Section 1.704-1(b) (2) (iv) (I) and not otherwise taken
into account in computing Net Profits and Net Losses pursuant to this definition
shall be subtracted from such taxable income or loss; (iii) items of income,
gain, loss and deduction specially allocated pursuant to Section 7.3 of this
Agreement shall not be included in the computation of Net Profits or Net Loss;
and if property is reflected on the books of the Partnership at a book value
that differs from the adjusted tax basis of the property in accordance with
Treasury Regulation Section 1.704-1 (b) (2) (iv) (d) or (f), depreciation,
amortization, and gain or loss with respect to such property shall be determined
by reference to such book value in a manner consistent with Treasury Regulation
Section 1.704-1 (b) (2) (iv) (g). The terms "Net Profit" or "Net Losses" shall
include the Partnership's distributive share of the profit or loss of any
partnership or joint venture in which it is a partner or joint venturer.

     "Offering" means the initial public offering of the Units in the
Partnership, as described in the Prospectus.

                                       26
<PAGE>

     "Offering Period" means the period commencing the Effective Date and ending
the last day of the calendar month in which the Closing Date occurs.

     "Operating Lease" means a lease or other contractual arrangement under
which an unaffiliated party agrees to pay the Partnership, directly or
indirectly, for the use of the Equipment, and which is not a Full Payout Net
Lease.

     "Organizational and Offering Expenses" means the expenses incurred in
connection with the organization of the Partnership and in preparation of the
offering for registration and subsequently offering and distributing it to the
public, including Underwriting Commissions, listing fees and advertising
expenses except advertising expenses related to the leasing of the Program's
Equipment.

     "Partners" means any one or more of the General Partner and the Limited
Partners.

     "Partnership" means Commonwealth Income & Growth Fund III, a Pennsylvania
limited partnership.

     "Person" means an individual, partnership, joint venture, corporation,
trust, estate or other entity.

     "Program" means a limited or general partnership, joint venture,
unincorporated association or similar organization, other than a corporation
formed and operated for the primary purpose of investment in and the operation
of or gain from an interest in Equipment.

     "Purchase Price" means, with respect to any Equipment, an amount equal to
the sum of (I) the invoice cost of such Equipment or any other such amount paid
to the seller, (ii) any closing, delivery and installation charges associated
therewith not included in such invoice cost and paid by or on behalf of the
Partnership, (iii) the cost of any capitalized modifications or upgrades paid by
or on behalf of the Partnership in connection with its purchase of the
Equipment, and (iv) the amount of the Equipment Acquisition Fee and any other
Acquisition Fees, but excluding points and prepaid interest.

     "Term Debt" means debt of the Partnership with a term in excess of twelve
months, incurred with respect to acquiring or investing in Equipment, or
refinancing non-Term Debt, but not debt incurred with respect to refinancing
existing Partnership Term Debt.

     "Underwriting Commissions" mean selling commissions and dealer-manager fees
paid to broker-dealers by the Partnership in connection with the offer and sale
of Units.

     "Unit" means a limited partnership interest in the Partnership.

PART IV

ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K

(a) (1)  Financial Statements.

         Commonwealth Income & Growth Fund II

         Report of Independent Certified Public Accountant

         Balance Sheets as of December 31, 2002 and 2001

         Statements of Operations for each of the three years ended December 31,
         2002, 2001 and 2000.

         Statements of Partners' Capital for each of the three years ended
         December 31, 2002, 2001 and 2000.

                                       27
<PAGE>

         Statements of Cash Flows for each of the three years ended December 31,
         2002, 2001 and 2000.

         Notes to Financial Statements

         Commonwealth Income & Growth Fund, Inc.

         Report of Independent Auditor

         Balance Sheet as of February 28, 2002

         Notes to Balance Sheet

         Commonwealth Capital Corp.

         Report of Independent Auditor

         Consolidated Balance Sheet as of February 28, 2002

         Notes to Consolidated Balance Sheet

(a) (2)  Schedules.

         Schedules are omitted because they are not applicable, not required, or
         because the required information is included in the financial
         statements and notes thereto.

(a) (3)  Exhibits.
         *  3.1 Certificate of Limited Partnership
         ** 3.2 Agreement of Limited Partnership
         ** 10.1 Agency Agreement dated as of May 12, 1995 by and among the
            Partnership, the General Partner and Wheat First Securities, Inc.

         27  Financial Data Schedule

         *        Incorporated by reference from the Partnership's Registration
                  Statement on Form S-1 (Registration No. 33-89476)
         **       Incorporated by reference for the Partnership's Annual Report
                  on Form 10-K for the year ended December 31, 1995.

               99.1 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Commonwealth Income & Growth Fund II,
(the "Company") on Form 10-K for the period ending December 31, 2002, as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, George S. Springsteen, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 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

                                       28
<PAGE>

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

/s/  GEORGE S. SPRINGSTEEN
--------------------------
George S. Springsteen
Chief Executive Officer
March 31, 2003

               99.2 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

                  CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Commonwealth Income & Growth Fund II,
(the "Company") on Form 10-K for the period ending December 31, 2002, as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
Kimberly A. Springsteen, Principal Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 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 result of operations of the
Company.

/s/  KIMBERLY A. SPRINGSTEEN
----------------------------
Kimberly A. Springsteen
Principal Financial Officer
March 31, 2003

SIGNATURES

         Pursuant to the requirements of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf March 31, 2003 by the undersigned thereunto duly authorized.

                                    COMMONWEALTH INCOME & GROWTH FUND II
                                         By:  COMMONWEALTH INCOME &
                                              GROWTH FUND, INC., General Partner

                                    By:      /s/ GEORGE S. SPRINGSTEEN
                                             -------------------------
                                             George S. Springsteen, President

                                       29
<PAGE>

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 31, 2003

SIGNATURE                                            CAPACITY

/s/ GEORGE S. SPRINGSTEEN           Chairman, President and Sole Director of
-------------------------           Commonwealth Income & Growth Fund, Inc.
George S. Springsteen

/s/ KIMBERLY A. SPRINGSTEEN         Executive Vice President Chief Operating
---------------------------         Officer and Secretary
Kimberly A. Springsteen

                                 CERTIFICATIONS

I, George Springsteen certify that:

1.   I have reviewed this annual report on Form 10-K of Commonwealth Income &
Growth Fund II (the Registrant);

2.   Based on my knowledge, this annual 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 period covered by this annual
report;

3.   Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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-14 and 15d-14) for the Registrant and we have:

                  a) designed such disclosure controls and procedures to ensure
                  the material information relating to the Registrant, including
                  its consolidated subsidiaries, is made known to us by others
                  within those entities, particularly during the period in which
                  this annual report is being prepared;

                  b) evaluated the effectiveness of the Registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the" Evaluation Date"
                  ); and

                  c) presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and the procedures
                  based on our evaluation as of the Evaluation Date;

5.   The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit committee
of the Registrant's board of directors ( or persons performing the equivalent
function):

                  a) all significant deficiencies in the design or the operation
                  of internal controls which could adversely affect the
                  Registrant's ability to record, process, summarize and report
                  financial data we have identified for the Registrant's
                  auditors any material weakness in internal controls; and

                  b) any fraud, whether or not material, that involves
                  management or other employees who have a significant role in
                  the Registrant's internal controls; and

6.   The Registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/  GEORGE S. SPRINGSTEEN
--------------------------
George S. Springsteen
Chief Executive Officer
March 31, 2003

                                       30
<PAGE>

I, Kimberly A. Springsteen, certify that:

1.   I have reviewed this annual report on Form 10-K of Commonwealth Income &
Growth Fund II (the Registrant);

2.   Based on my knowledge, this annual 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 period covered by this annual
report;

3.   Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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-14 and 15d-14) for the Registrant and we have:

                  a) designed such disclosure controls and procedures to ensure
                  the material information relating to the Registrant, including
                  its consolidated subsidiaries, is made known to us by others
                  within those entities, particularly during the period in which
                  this annual report is being prepared;

                  b) evaluated the effectiveness of the Registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the" Evaluation Date"
                  ); and

                  c) presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and the procedures
                  based on our evaluation as of the Evaluation Date;

5.   The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit committee
of the Registrant's board of directors ( or persons performing the equivalent
function):

                  a) all significant deficiencies in the design or the operation
                  of internal controls which could adversely affect the
                  Registrant's ability to record, process, summarize and report
                  financial data we have identified for the Registrant's
                  auditors any material weakness in internal controls; and

                  b) any fraud, whether or not material, that involves
                  management or other employees who have a significant role in
                  the Registrant's internal controls; and

6.   The Registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/  KIMBERLY A. SPRINGSTEEN
----------------------------
Kimberly A. Springsteen
Principal Financial Officer
March 31, 2003

                                       31

<PAGE>

                      Commonwealth Income & Growth Fund II

                  Years Ended December 31, 2002, 2001 and 2000

<PAGE>

                      Commonwealth Income & Growth Fund II

                          Financial Statements

                  Years Ended December 31, 2002, 2001 and 2000

<PAGE>

                      Commonwealth Income & Growth Fund II

                                    Contents

        Report of Independent Certified Public Accountants               3

        Financial statements
            Balance sheets                                             4-5
            Statements of operations                                     6
            Statements of partners' capital                              7
            Statements of cash flows                                   8-9

        Notes to financial statements                                10-26

                                        2
<PAGE>

Report of Independent Certified Public Accountants

The Partners
Commonwealth Income & Growth Fund II
Exton, Pennsylvania

We have audited the accompanying balance sheets of Commonwealth Income & Growth
Fund II as of December 31, 2002 and 2001, and the related statements of
operations, partners' capital, and cash flows for each of the three years in the
period ended December 31, 2002. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the
audits 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 provide 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 Commonwealth Income & Growth
Fund II at December 31, 2002 and 2001, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2002, in
conformity with generally accepted accounting principles in the United States.

                                                    /s/ BDO Seidman, LLP

Philadelphia, Pennsylvania
March 7, 2003

                                       3
<PAGE>

<TABLE>
<CAPTION>
December 31,                                                                      2002                 2001
-------------------------------------------------------------------------   -----------------    ----------------
<S>                                                                         <C>                  <C>
Assets

Cash and cash equivalents                                                   $          33,361    $         14,425
Lease income receivable, net of reserve of $421,000 in 2002,
     and $54,200 in 2001                                                              409,516             488,472
Net investment in direct financing leases                                             191,426                   -
Accounts receivable, affiliated limited partnerships                                    8,434               2,761
Prepaid fees                                                                            6,219               3,200
                                                                            -----------------    ----------------
                                                                                      648,956             508,858
                                                                            -----------------    ----------------
Computer equipment, at cost                                                        10,350,520          11,656,085
Accumulated depreciation                                                           (7,819,423)         (7,769,975)
                                                                            -----------------    ----------------
                                                                                    2,531,097           3,886,110
                                                                            -----------------    ----------------
Equipment acquisition costs and deferred expenses, net of
     accumulated amortization of $91,604 and $85,025, respectively                    105,025             148,988
Accounts receivable, Commonwealth Capital Corp.                                       307,404             315,404
                                                                            -----------------    ----------------
                                                                                      412,429             464,392
                                                                            -----------------    ----------------
Total assets                                                                $       3,592,482    $      4,859,360
                                                                            =================    ================
</TABLE>

                                       4
<PAGE>

                      Commonwealth Income & Growth Fund II

                                  Balance Sheet

<TABLE>
<CAPTION>
December 31,                                                                       2002                2001
-------------------------------------------------------------------------   -----------------    ----------------
<S>                                                                         <C>                  <C>
Liabilities and Partners' Capital

Liabilities
     Accounts payable                                                       $          72,658    $         40,472
     Accounts payable, General Partner                                                 27,457              55,675
     Other accrued expenses                                                             7,362                   -
     Unearned lease income                                                            172,692              75,930
     Notes payable                                                                  1,780,299           2,380,383
                                                                            -----------------    ----------------
Total liabilities                                                                   2,060,468           2,552,460
                                                                            -----------------    ----------------

Partners' capital
     General Partner                                                                    1,000               1,000
     Limited Partners                                                               1,531,014           2,305,900
                                                                            -----------------    ----------------
Total partners' capital                                                             1,532,014           2,306,900
                                                                            -----------------    ----------------
Total liabilities and partners' capital                                     $       3,592,482    $      4,859,360
                                                                            =================    ================
</TABLE>

                                 See accompanying notes to financial statements.

                                       5
<PAGE>

                      Commonwealth Income & Growth Fund II

                            Statements of Operations

<TABLE>
<CAPTION>
Year ended December 31,                                            2002                2001                2000
-----------------------------------------------------------    -------------       -------------       ------------
<S>                                                            <C>                 <C>                 <C>
Income
     Lease                                                     $   2,711,579       $   3,014,643       $  4,105,811
     Interest and other                                                2,054               9,248             11,359
     Gain on sale of equipment                                           828             295,135                  -
                                                               -------------       -------------       ------------
Total income                                                       2,714,461           3,319,026          4,117,170
                                                               -------------       -------------       ------------
Expenses
     Operating, excluding depreciation                               571,038             360,293            241,150
     Equipment management fee, General Partner                       135,579             151,046            221,768
     Depreciation                                                  1,630,810           2,183,171          3,516,828
     Amortization of equipment acquisition costs, and
         deferred expenses                                            73,028              87,058            162,722
     Interest                                                        156,380             105,496            160,897
     Provision for uncollectible accounts receivable                 398,868               9,200             45,000
     Loss on sale of computer equipment                                    -                   -            138,014
                                                               -------------       -------------       ------------
Total expenses                                                     2,965,703           2,896,264          4,486,379
                                                               -------------       -------------       ------------
Net (loss) income                                              $    (251,242)      $     422,762       $   (369,209)
                                                               =============       =============       ============

Net (loss) income per equivalent limited partnership unit      $       (0.55)      $        0.90       $       (.82)

Weighted average number of equivalent
     limited partnership units outstanding during the year           460,126             461,400            461,817
                                                               =============       =============       ============
</TABLE>

                                 See accompanying notes to financial statements.

                                        6
<PAGE>

                      Commonwealth Income & Growth Fund II

                         Statements of Partners' Capital

<TABLE>
<CAPTION>
                                         General    Limited
                                         Partner    Partner      General         Limited
                                          Units      Units       Partner         Partners            Total
                                         -------    -------   ------------    --------------    ---------------
<S>                                           <C>   <C>       <C>             <C>               <C>
Balance, December 31, 1999                    50    461,817   $      1,000    $    3,878,739    $     3,879,739

Net income (loss)                              -          -          9,122          (378,331)          (369,209)
Distributions                                  -          -         (9,122)         (914,424)          (923,546)
                                         -------    -------   ------------    --------------    ---------------

Balance, December 31, 2000                    50    461,817          1,000         2,585,984          2,586,984

Net income                                     -          -          6,840           415,922            422,762
Redemption                                     -     (1,250)             -           (10,577)           (10,577)
Distributions                                  -          -         (6,840)         (685,429)          (692,269)
                                         -------    -------   ------------    --------------    ---------------

Balance, December 31, 2001                    50    460,567          1,000         2,305,900          2,306,900
Net income (loss)                              -          -          5,194          (256,436)          (251,242)
Redemption                                     -       (500)             -            (4,164)            (4,164)
Distributions                                  -          -         (5,194)         (514,286)          (519,480)
                                         -------    -------   ------------    --------------    ---------------
Balance, December 31, 2002                    50    460,067   $      1,000    $    1,531,014    $     1,532,014
                                         =======    =======   ============    ==============    ===============
</TABLE>

                                 See accompanying notes to financial statements.

                                        7
<PAGE>

                      Commonwealth Income & Growth Fund II

                            Statements of Cash Flows

<TABLE>
<CAPTION>
Year ended December 31,                                             2002              2001             2000
------------------------------------------------------------   ---------------   --------------   ---------------
<S>                                                            <C>               <C>              <C>
Cash flows from operating activities
     Net (loss) income                                         $      (251,242)  $      422,762   $      (369,209)
     Adjustments to reconcile net (loss) income to net cash
         provided by operating activities
              Depreciation and amortization                          1,703,838        2,270,229         3,679,550
              (Gain) loss on sale of computer
                  equipment                                               (828)        (295,135)          138,014
              Other noncash activities included in
                  determination of net (loss) income                (1,149,810)      (1,252,115)       (2,381,576)
              Changes in assets and liabilities
                  (Increase) decrease in assets
                      Lease income receivable                           78,956          (31,227)         (156,738)
                      Interest and other receivables                         -                -            30,689
                      Prepaid fees                                      (3,019)               -            (3,200)
                  Increase (decrease) in liabilities
                      Accounts payable                                  32,186          (51,098)            4,012
                      Accounts payable,
                           Commonwealth Capital Corp.                        -              (62)               62
                           Accounts payable, General Partner           (28,218)          50,174            40,419
                      Accounts receivable / payable,
                            affiliated limited partnerships             (5,673)          (7,090)            4,329
                      Other accrued expenses                             7,362                -                 -
                      Unearned lease income                             96,762           42,544          (129,548)
                                                               ---------------   --------------   ---------------
Net cash provided by operating activities                              480,314        1,148,982           856,804
                                                               ---------------   --------------   ---------------
</TABLE>

                                       8
<PAGE>

                      Commonwealth Income & Growth Fund II

                            Statements of Cash Flows

<TABLE>
<CAPTION>
Year ended December 31,                                              2002               2001            2000
-------------------------------------------------------------   ----------------    ------------    ------------
<S>                                                             <C>                 <C>             <C>
Cash flows from investing activities
     Capital expenditures                                       $        (97,107)   $   (677,233)   $    (98,453)
     Net proceeds from sale of computer
         equipment                                                       134,335         408,634         431,394
     Equipment acquisition fees paid to the
         General Partner                                                 (24,029)       (105,760)        (33,588)
                                                                ----------------    ------------    ------------
Net cash provided by (used in) investing
     activities                                                           13,199        (374,359)        299,353
                                                                ----------------    ------------    ------------
Cash flows from financing activities
     Proceeds from refinancing notes payable                              46,103               -               -
     Distributions to partners                                          (519,480)       (692,269)       (923,546)
     Accounts receivables - Commonwealth
         Capital Corp.                                                     8,000        (315,404)              -
     Redemption of limited partners                                       (4,164)        (10,577)              -
     Debt placement fee paid to the General
         Partner                                                          (5,036)        (19,667)         (7,215)
                                                                ----------------    ------------    ------------
Net cash (used in) financing activities                                 (474,577)     (1,037,917)       (930,761)
                                                                ----------------    ------------    ------------
Net increase (decrease) in cash and cash
     equivalents                                                          18,936        (263,294)        225,396

Cash and cash equivalents at beginning of year                            14,425         277,719          52,323
                                                                ----------------    ------------    ------------
Cash and cash equivalents at end of year                        $         33,361    $     14,425    $    277,719
                                                                ================    ============    ============
</TABLE>

                                 See accompanying notes to financial statements.

                                        9
<PAGE>

                      Commonwealth Income & Growth Fund II

                          Notes to Financial Statements

1.       Business

Commonwealth Income & Growth Fund II (the "Partnership") is a limited
partnership organized in the Commonwealth of Pennsylvania to acquire, own and
lease various types of computer peripheral equipment and other similar capital
equipment, which will be leased primarily to U.S. corporations and institutions.
Commonwealth Capital Corp. ("CCC"), on behalf of the Partnership and other
affiliated partnerships, acquires computer equipment subject to associated debt
obligations and lease agreements and allocates a participation in the cost, debt
and lease revenue to the various partnerships based on certain risk factors. The
Partnership's General Partner is Commonwealth Income & Growth Fund, Inc. (the
"General Partner"), a Pennsylvania corporation which is an indirect wholly owned
subsidiary of CCC. CCC is a member of the Investment Program Association (IPA),
Financial Planning Association (FPA), and the Equipment Leasing Association
(ELA). Approximately ten years after the commencement of operations, the
Partnership intends to sell or otherwise dispose of all of its computer
equipment, make final distributions to partners, and to dissolve. Unless sooner
terminated, the Partnership will continue until December 31, 2006.

Allocations of income and distributions of cash are based on the Partnership's
Limited Partnership Agreement (the "Agreement"). The various allocations under
the Agreement prevent any limited partner's capital account from being reduced
below zero and ensure the capital accounts reflect the anticipated sharing
ratios of cash distributions, as defined in the Agreement. During 2002, annual
cash distributions to limited partners were made at a rate of 5.6% of their
original contributed capital. During 2001, annual cash distributions to limited
partners were made at a rate of 7.4% of their original contributed capital.
During 2000, annual cash distributions to limited partners were made at a rate
of 9.9% of their original contributed capital. Distributions during 2002 reflect
an annual return of capital in the amount of approximately $1.12 per weighted
average number of limited partnership units outstanding during the year.
Distributions during 2001 reflect an annual return of capital in the amount of
approximately $1.49 per weighted average number of limited partnership units
outstanding during the year. Distributions during 2000 reflect an annual return
of capital in the amount of approximately $1.98 per limited partnership unit for
units, which were outstanding for the entire year.

                                       10
<PAGE>

                      Commonwealth Income & Growth Fund II

                          Notes to Financial Statements

2.       Summary of Significant Accounting Policies

Revenue Recognition

Through December 31, 2002, the Partnership's leasing operations consist
substantially of operating leases and six direct-financing leases. Operating
lease revenue is recognized on a monthly basis in accordance with the terms of
the lease agreement. Unearned revenue from direct financing agreements is
amortized to revenue over the lease term.

The Partnership reviews a customer's credit history before extending credit and
establishes a provision for uncollectible accounts receivable based upon the
credit risk of specific customers, historical trends and other information.

Use of 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.

Long-Lived Assets

The Partnership evaluates its long-lived assets when events or circumstances
indicate that the value of the asset may not be recoverable. The Partnership
determines whether impairment exists by estimating the undiscounted cash flows
to be generated by each asset. If the estimated undiscounted cash flows are less
than the carrying value of the asset then impairment exists. The amount of the
impairment is determined based on the difference between the carrying value and
the fair value. The fair value is determined based on estimated discounted cash
flows to be generated by the asset. In 2002 and 2000, the Partnership determined
that no impairment had occurred. In 2001, the Partnership determined that the
carrying amount of certain assets was greater than the undiscounted cash flows
to be generated by these assets. The Partnership recorded charges of $100,000
and in the fourth quarter of 2001 to record the assets at their estimated fair
value. Such amounts have been included in depreciation expense in the
accompanying financial statements.

                                       11
<PAGE>

                      Commonwealth Income & Growth Fund II

                          Notes to Financial Statements

Depreciation on computer equipment for financial statement purposes is based on
the straight-line method over estimated useful lives of four years.

Intangible Assets

Equipment acquisition costs and deferred expenses, are amortized on a
straight-line basis over two- to-four year lives. Unamortized acquisition fees
and deferred expenses are charged to amortization expense when the associated
leased equipment is sold.

Cash and Cash Equivalents

The Partnership considers all highly liquid investments with a maturity of three
months or less to be cash equivalents. Cash equivalents have been invested in a
money market fund investing directly in Treasury obligations.

Income Taxes

The Partnership is not subject to federal income taxes; instead, any taxable
income (loss) is passed through to the partners and included on their respective
income tax returns.

Taxable income differs from financial statement net income as a result of
reporting certain income and expense items for tax purposes in periods other
than those used for financial statement purposes, principally relating to
depreciation, amortization, and lease income.

Offering Costs

Offering costs are payments for selling commissions, dealer manager fees,
professional fees and other offering expenses relating to the syndication.
Selling commissions were 7% of the partners' contributed capital and dealer
manager fees were 2% of the partners' contributed capital. These costs have been
deducted from partnership capital in the accompanying financial statements.

                                       12
<PAGE>

                      Commonwealth Income & Growth Fund II

                          Notes to Financial Statements

Net Income (Loss) Per Equivalent Limited Partnership Unit

The net income (loss) per equivalent limited partnership unit is computed based
upon net income (loss) allocated to the limited partners and the weighted
average number of equivalent limited partner units outstanding during the year.

                                       13
<PAGE>

                      Commonwealth Income & Growth Fund II

                          Notes to Financial Statements

Reimbursable Expenses

Reimbursable expenses, which are charged to the Partnership by CCC in connection
with the administration and operation of the Partnership, are allocated to the
Partnership based upon several factors including, but not limited to, the number
of investors, compliance issues, and the number of existing leases.

Recent Accounting Pronouncements

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, including Indirect Guarantees of
Indebtedness of Others" ("Interpretation No. 45"). This Interpretation
elaborates on the existing disclosure requirements for most guarantees,
including loan guarantees such as standby letters of credit. It also clarifies
that at the time a company issues a guarantee, the company must recognize an
initial liability for the fair market value of the obligations it assumes under
that guarantee and must disclose that information in its interim and annual
financial statements. The initial recognition and measurement provisions of
Interpretation No. 45 apply on a prospective basis to guarantees issued or
modified after December 31, 2002. The adoption of Interpretation No. 45 is not
expected to have a material impact on the Company's results of operations,
financial position or cash flows.

In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of. However, the Statement retains the
fundamental provisions of Statement 121 for (a) recognition and measurement of
the impairment of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of by sale.

This Statement supersedes the accounting and reporting provisions of APB Opinion
No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of
a Segment of a business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business. However,
this Statement retains the requirement of Opinion 30 to report discontinued
operations separately from continuing operations and extends that reporting to a
component of an entity that either has been disposed of (by sale, by
abandonment, or in distribution to owners) or is classified as held for sale.
This Statement also amends ARB No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidation for a temporarily controlled
subsidiary.

The provisions of this Statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years, with earlier application encouraged. The provisions of this
Statement generally are to be applied prospectively. The adoption of the
Statement on January 1, 2002, did not have a material impact on earnings.

                                       14
<PAGE>

                      Commonwealth Income & Growth Fund II

                          Notes to Financial Statements

3.       Net Investment in Direct Financing Sales-Type Leases

The following lists the components of the net investment in direct financing and
sales-type leases as of December 31, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                   2002            2001
                                                                -----------      ---------
         <S>                                                    <C>              <C>
         Minimum lease payments receivable                      $   236,208      $       -
         Less: Unearned Revenue                                      44,782              -
                                                                -----------      ---------
         Net investment in direct financing leases              $   191,426             --
                                                                -----------      ---------
</TABLE>


The following is a schedule of future minimum rentals on noncancellable direct
financing at December 31, 2002:

         Year ending December 31,                     Amount
         ------------------------                    ---------

              2003                                   $  67,488

              2004                                      67,488

              2005                                      67,488

              2006                                      33,744
                                                     ---------
                                                     $ 236,208
                                                     =========

All direct financing leases are with one lessee.

                                       15
<PAGE>

                      Commonwealth Income & Growth Fund II

                          Notes to Financial Statements

4.       Computer Equipment

The Partnership is the lessor of equipment under operating and capital leases
with periods ranging from 12 to 48 months. In general, associated costs such as
repairs and maintenance, insurance and property taxes are paid by the lessee.

The Partnership's share of the computer equipment in which they participate at
December 31, 2002 and 2001 was approximately $3,211,000 and $3,012,000,
respectively, which is included in the Partnership's fixed assets on their
balance sheet, and the total cost of the equipment shared by the Partnership
with other partnerships at December 31, 2002 and 2001 was approximately
$6,294,000 and $5,650,000, respectively. The Partnership's share of the
outstanding debt associated with this equipment at December 31, 2002 and 2001
was approximately $1,103,000 and $1,581,000, respectively, which is included in
the Partnership's liabilities on the balance sheet, and the total outstanding
debt at December 31, 2002 and 2001 related to the equipment shared by the
Partnership was approximately $1,956,000 and $2,406,000, respectively.

The following is a schedule of future minimum rentals on noncancelable operating
leases at December 31, 2002:

              Year ending December 31,                             Amount
              ---------------------------------------------   --------------

                  2003                                        $   1,278,000
                  2004                                              731,000
                  2005                                               28,000
                  2006                                                7,000
                                                              --------------
                                                              $   2,044,000
                                                              ==============

Lease income from four lessees, each exceeding 10% of lease revenue, represented
approximately 50% of lease income for the year ended December 31, 2002. Lease
income from three lessees approximated 40% of lease income for the year ended
December 31, 2001. Lease income from one lessee approximated 11% of lease income
for the year ended December 31, 2000.

As of December 31, 2002, two lessees comprised approximately 99% of the
Partnership's accounts receivable.

                                       16
<PAGE>

                      Commonwealth Income & Growth Fund II

                          Notes to Financial Statements

5.       Related Party Transactions

Organizational Fee

The General Partner is entitled to be paid an Organizational Fee equal to three
percent of the first $10,000,000 of Limited Partners' Capital Contributions and
two percent of the Limited Partners' Capital Contributions in excess of
$10,000,000, as compensation for the organization of the Partnership. No
organizational fees were paid during 2002, 2001 and 2000.

                                       17
<PAGE>

                      Commonwealth Income & Growth Fund II

                          Notes to Financial Statements

Reimbursement of Expenses

The General Partner and its affiliates are entitled to reimbursement by the
Partnership for the cost of goods, supplies or services obtained and used by the
General Partner in connection with the administration and operation of the
Partnership from third parties unaffiliated with the General Partner. In
addition, the General Partner and its affiliates are entitled to reimbursement
for certain expenses incurred by the General Partner and its affiliates in
connection with the administration and operation of the Partnership. During
2002, 2001 and 2000, the Partnership recorded $246,000, $148,000 and $91,000,
respectively, for reimbursement of expenses to the General Partner.

Equipment Acquisition Fee

The General Partner is entitled to be paid an equipment acquisition fee of 4% of
the purchase price of each item of equipment purchased as compensation for the
negotiation of the acquisition of the equipment and lease thereof or sale under
a conditional sales contract. The fee was paid upon each closing of the Offering
with respect to the equipment to be purchased by the Partnership with the net
proceeds for the Offering available for investment in equipment. If the
Partnership acquires equipment in an amount exceeding the net proceeds of the
Offering available for investment in equipment, the fee will be paid when such
equipment is acquired. During 2002, 2001 and 2000, equipment acquisition fees of
approximately $24,000, $106,000 and $33,000, respectively, were paid to the
General Partner.

Debt Placement Fee

As compensation for arranging term debt to finance the acquisition of equipment
by the Partnership, the General Partner is paid a fee equal to 1% of such
indebtedness; provided, however, that such fee shall be reduced to the extent
the Partnership incurs such fees to third parties, unaffiliated with the General
Partner or the lender, with respect to such indebtedness and no such fee will be
paid with respect to borrowings from the General Partner or its affiliates.
During 2002, 2001 and 2000, debt placement fees of approximately $5,000, $20,000
and $7,000, respectively, were paid to the General Partner.

                                       18
<PAGE>

                      Commonwealth Income & Growth Fund II

                          Notes to Financial Statements

Equipment Management Fee

The General Partner is entitled to be paid a monthly fee equal to the lesser of
(i) the fees which would be charged by an independent third party for similar
services for similar equipment or (ii) the sum of (a) two percent of (1) the
gross lease revenues attributable to equipment which is subject to full payout
net leases which contain net lease provisions plus (2) the purchase price paid
on conditional sales contracts as received by the Partnership and (b) 5% of the
gross lease revenues attributable to equipment which is subject to operating
leases. During 2002, 2001 and 2000, equipment management fees of approximately
$136,000, $151,000 and $222,000, respectively, were paid to the General Partner
as determined pursuant to section (ii) above.

Release Fee

As compensation for providing releasing services for any equipment for which the
General Partner has, following the expiration of, or default under, the most
recent lease or conditional sales contract, arranged a subsequent lease or
conditional sales contract for the use of such equipment to a lessee or other
party, other than the current or most recent lessee or other operator of such
equipment or its affiliates ("Release"), the General Partner shall receive, on a
monthly basis, a Release Fee equal to the lesser of (a) the fees which would be
charged by an independent third party for comparable services for comparable
equipment or (b) two percent of gross lease revenues derived from such Release.
There were no such fees paid to the General Partner in 2002, 2001 and 2000.

                                       19
<PAGE>

                      Commonwealth Income & Growth Fund II

                          Notes to Financial Statements

Equipment Liquidation Fee

With respect to each item of equipment sold by the General Partner (other than
in connection with a conditional sales contract), a fee equal to the lesser of
(i) 50% of the competitive equipment sale commission or (ii) three percent of
the sales price for such equipment is payable to the General Partner. The
payment of such fee is subordinated to the receipt by the limited partners of
the net disposition proceeds from such sale in accordance with the Partnership
Agreement. Such fee will be reduced to the extent any liquidation or resale fees
are paid to unaffiliated parties. There were no such fees paid to the General
Partner in 2002, 2001 and 2000.

Accounts Receivable - Commonwealth Capital Corp

As of December 31, 2002, the Partnership has a non-interest bearing receivable
from Commonwealth Capital Corp ("CCC"), a related party to the Partnership, in
the amount of approximately $286,000, which originated in 2001. CCC, through its
indirect subsidiaries, including the General Partner of the Partnership, earns
fees based on revenues and new lease purchases from this fund. CCC intends to
repay, through acquisition and debt placement fees, over approximately the next
two fiscal years, with a minimum payment of $5,000 per month, commencing January
1, 2003.

6.       Notes Payable

Notes payable consisted of the following:

  December 31,                                        2002            2001
  ----------------------------------------------   ---------      -----------

  Installment notes payable to banks; interest
  ranging from 6.6% to 9.25%, due in monthly
  installments ranging from $108 to $14,928,
  including interest, with final payments due
  from January through November 2002.              $      -       $    81,833

                                       20
<PAGE>

                      Commonwealth Income & Growth Fund II

                          Notes to Financial Statements

  December 31,                                         2002          2001
  ----------------------------------------------   -----------    -----------

  Installment notes payable to banks; interest
  ranging from 7.25% to 9.75%, due in monthly
  installments ranging from $72 to $5,975,
  including interest, with final payments due
  from February through December 2003.             $   224,172    $   490,762

  Installment notes payable to banks; interest
  ranging from 6.50% to 8.75%, due in monthly
  installments ranging from $96 to $22,799,
  including interest, with final payments due
  from February through December 2004.               1,213,397      1,807,788

  Installment notes payable to banks; interest
  ranging from 6.25% to 6.80%, due in monthly
  installments ranging from $241 to $1,875,
  including interest, with final payments due
  from February through April 2005.                    131,353              -

  Installment notes payable to banks; interest
  ranging from 5.95% to 6.50%, due in monthly
  installments ranging from $507 to $1,892,
  including interest, with final payments due
  June 2006.                                           211,377              -
                                                   -----------    -----------
                                                   $ 1,780,299    $ 2,380,383
                                                   ===========    ===========

                                       21
<PAGE>

                      Commonwealth Income & Growth Fund II

                          Notes to Financial Statements

These notes are secured by specific computer equipment and are nonrecourse
liabilities of the Partnership. Aggregate maturities of notes payable for each
of the years subsequent to December 31, 2002 are as follows:

     Year ending December 31,                                 Amount
     --------------------------------------------------     -----------

         2003                                               $ 1,051,933
         2004                                                   618,764
         2005                                                    76,536
         2006                                                    33,066
                                                            -----------
                                                            $ 1,780,299
                                                            ===========

7.       Supplemental Cash Flow Information

Other noncash activities included in the determination of net loss are as
follows:

<TABLE>
<CAPTION>
Year ended December 31,                                         2002               2001                2000
-------------------------------------------------------   ----------------   ----------------    ----------------
<S>                                                       <C>                <C>                 <C>
Lease income, net of interest expense on
     notes payable realized as a result of direct
     payment of principal by lessee to bank               $      1,149,810   $      1,250,353    $      2,381,576

Lease income paid to original lessor in lieu
     of cash payment for computer equipment acquired                     -              1,762                   -
                                                          ----------------   ----------------    ----------------
Total adjustment to net loss from other
     noncash activities                                   $      1,149,810   $      1,252,115    $      2,381,576
                                                          ----------------   ----------------    ----------------
</TABLE>

No interest or principal on notes payable was paid by the Partnership because
direct payment was made by lessee to the bank in lieu of collection of lease
income and payment of interest and principal by the Partnership.

                                       22
<PAGE>

                      Commonwealth Income & Growth Fund II

                          Notes to Financial Statements

         Noncash investing and financing activities include the following:

<TABLE>
<CAPTION>
Year ended December 31,                                          2002              2001                2000
-----------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                <C>                 <C>
Debt assumed in connection with purchase
     of computer equipment                                 $     503,623     $    1,966,682      $     721,296
-----------------------------------------------------------------------------------------------------------------

Net book value of equipment converted to
     direct financing leases                               $     226,581     $           --      $          --
-----------------------------------------------------------------------------------------------------------------

Notes payable refinanced                                   $     189,909     $           --      $          --
-----------------------------------------------------------------------------------------------------------------

</TABLE>

8.       Litigation

The Partnership, through Commonwealth Capital Corp, has initiated a lawsuit
against a customer for failure to make monthly lease payments based on the
existing lease terms. Management believes that the Partnership will prevail in
this matter and that the outcome of this uncertainty is not expected to have a
material adverse impact to the financial statements of the Partnership. The
Partnership has approximately $404,000 of unreserved accounts receivable
relating to this matter.

9.       Reconciliation of Net (Loss) Income Reported for Financial Reporting
         Purposes to Taxable (Loss) Income on the Federal Partnership Return

<TABLE>
<CAPTION>
Year ended December 31,                                          2002              2001                2000
-------------------------------------------------------   ----------------   ----------------    ----------------
<S>                                                       <C>                <C>                 <C>
Net (loss) income for financial
         reporting purposes                               $       (251,242)  $        422,762    $       (369,209)
     Adjustments
         Depreciation                                             (747,721)              (626)            748,607
         Amortization                                               60,869             69,077             150,046
         Unearned lease income                                     251,553              4,176              (3,276)
         Bad debt expense                                          281,008                  -                   -
         Loss on sale of computer equipment                       (318,453)          (921,318)           (707,768)
         Other                                                     186,706           (112,207)            (15,357)
                                                          ----------------   ----------------    ----------------
Taxable (loss) on the Federal Partnership
     Return                                               $       (537,280)  $       (536,884)   $       (196,957)
                                                          ================   ================    ================
</TABLE>

                                       23
<PAGE>

                      Commonwealth Income & Growth Fund II

                          Notes to Financial Statements

The "Adjustments - Other" includes financial statement adjustments reflected on
the tax return in the subsequent year.

Adjustment for (loss) on sale of equipment is due to larger depreciation lives
for tax reporting purposes.

10.      Quarterly Results of Operation (Unaudited)

Summarized quarterly financial data for the years ended December 31, 2002 and
2001 is as follows:

<TABLE>
<CAPTION>

                                                                        Quarter ended
                                           -------------------------------------------------------------------
                                              March 31         June 30        September 30         December 31
                                           --------------   -------------    ---------------     -------------
<S>                                        <C>              <C>              <C>                 <C>
2002

Revenues
     Lease and other                       $      703,717   $     686,154    $       668,151     $     655,611
     Gain on sale of computer
         equipment                                  1,842          (1,539)              (611)            1,136
                                           --------------   -------------    ---------------     -------------
Total revenues                                    705,559         684,615            667,540           656,747

Total costs and expenses                          782,877         717,176            720,191           745,459
                                           --------------   -------------    ---------------     -------------
Net (loss)                                 $      (77,318)  $     (32,561)   $       (52,651)    $     (88,712)
                                           ==============   =============    ===============     =============
(Loss) per limited
     partner unit                          $         (.17)  $        (.07)   $          (.11)    $        (.19)
                                           ==============   =============    ===============     =============
</TABLE>

During the fourth quarter of 2002, the Partnership recorded a provision for
uncollectible accounts receivable of approximately $212,000 "representing a $.46
loss per limited partner unit", which includes approximately $111,000 for
revenues recorded in the 4th quarter.

                                       24
<PAGE>

                      Commonwealth Income & Growth Fund II

                          Notes to Financial Statements

<TABLE>
<CAPTION>
                                                                        Quarter ended
                                           ----------------------------------------------------------------------
                                               March 31         June 30          September 30       December 31
                                           --------------   --------------    ----------------   ---------------
<S>                                        <C>              <C>               <C>                <C>
2001

Revenues
     Lease and other                       $      832,208   $      748,966    $        750,903   $       691,814
     Gain on sale of computer
         equipment                                      -           95,628             182,389            40,363
                                           --------------   --------------    ----------------   ---------------
Total revenues                                    832,208          844,594             933,292           732,177
                                           --------------   --------------    ----------------   ---------------
Costs and expenses
     Costs and expenses                           938,892          627,545             546,334           783,493
     Loss on sale of computer
         equipment                                 23,245                -                   -                 -
                                           --------------   --------------    ----------------   ---------------
Total costs and expenses                          962,137          627,545             546,334           783,493
                                           --------------   --------------    ----------------   ---------------
Net (loss) income                          $     (129,929)  $      217,049    $        386,958   $       (51,316)
                                           ==============   ==============    ================   ===============
(Loss) income per limited
     partner unit                          $        (0.29)  $         0.47    $           0.84   $         (0.08)
                                           ==============   ==============    ================   ===============
</TABLE>

The cumulative gain or loss on sale of equipment is included in revenues or
costs as appropriate.

                                       25