<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 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, 2005

[ ] 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                                           23-2785120
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                           Identification Number)

                               470 John Young Way
                                 Exton, PA 19341
          (Address, including zip code, of principal executive offices)

                                 (610) 594-9600
               (Registrant's telephone number including area code)

           Securities registered pursuant to Section 12(b) of the Act:

           Title of each class                    Name of exchange on
           to be so registered                      which each class
                                                  is to be registered

              None                                      N/A

           Securities registered pursuant to Section 12(g) of the Act:

                      Units of Limited Partnership Interest
                      -------------------------------------
                                (Title of Class)

         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 filers pursuant to
Item 405 of Regulation S-K is not contained herein, to the best of 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: YES
[X] NO [ ] Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12c-2 of the Act): YES [ ] NO [X]

         Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act): YES [ ] NO [X]

         Aggregate Market Value of Voting and Non-Voting Common Equity Held by
non-affiliates of the Registrant: N/A

         Indicate by check mark if the registrant is a well-known seasoned
issuer, (as defined in Rule 405 of the Act): YES [ ] NO [X]

<PAGE>

                                    FORM 10-K
                                DECEMBER 31, 2005

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                     PART I
<S>         <C>                                                                   <C>
Item 1.     Business                                                               3
Item 1A.    Risk Factors                                                           6
Item 1B.    Unresolved Staff Comments                                              6
Item 2.     Properties                                                             6
Item 3.     Legal Proceedings                                                      6
Item 4.     Submission of Matters to a Vote of Security Holders                    7

                                     PART II
Item 5.     Market for Registrant's Common Equity, Related Stockholder Matters
            and Issuer Purchases of Equity Securities                              7
Item 6.     Selected Financial Data                                                9
Item 7.     Management's Discussion and Analysis of Financial Condition and
            Results of Operations                                                 11
Item 7A.    Quantitative and Qualitative Disclosures About Market Risk            14
Item 8.     Financial Statements and Supplementary Data                           14
Item 9.     Changes in and Disagreements with Accountants on Accounting and
            Financial Disclosure                                                  14
Item 9A.    Controls and Procedures                                               15
Item 9B.    Other Information                                                     15

                                    PART III
Item 10.    Directors and Executive Officers of the Registrant                    15
Item 11.    Executive Compensation                                                18
Item 12.    Security Ownership of Certain Beneficial Owners and Management        18
Item 13.    Certain Relationships and Related Transactions                        19
Item 14.    Principal Accountant Fees and Services                                25

                                     PART IV
Item 15.    Exhibits and Financial Statements                                     25

            Index to Exhibits

            Signatures

            Certifications
</TABLE>

                                                                               2
<PAGE>

PART I

ITEM 1:     BUSINESS

GENERAL

Commonwealth Income & 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.

The Partnership began liquidation effective April 1, 2005. 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 the partnership equipment should be sold will be
made by the General Partner after consideration of all relevant factors
(including prevailing economic 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.

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 exceeding 30% of
the aggregate cost of the Equipment owned or subject to Conditional Sales
Contract by the Partnership at the time the debt was 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. Currently, the Partnership's
primary objective is the orderly and efficient liquidation of its equipment
portfolio.

Limited Partners do not have the right to vote on or otherwise approve or
disapprove any particular investment to be made by the Partnership or the terms
of any sale of equipment in liquidation

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.

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 are 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

                                                                               3
<PAGE>

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.

DESCRIPTION OF LEASES

The Partnership to date has purchased 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 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, 2005, 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, 2005, we have entered into seven
Capital Leases with two lessees.

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.

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, 2005, all leases that have
been entered into are "triple net leases".

                                                                               4
<PAGE>

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, 2005, the Partnership has not entered into any such agreements.

Remarketing fees are paid to the leasing companies from which the Partnership
purchases leases. These are fees that are earned by the leasing companies when
the initial terms of the lease have been met. The General Partner believes that
this strategy adds value since it entices the leasing company to "stay with the
lease" for potential extensions, remarketing or sale of equipment. This strategy
potentially minimizes any conflicts the leasing company may have with a
potential new lease and will potentially assist in maximizing overall portfolio
performance. The remarketing fee is tied into lease performance thresholds and
is factored in the negotiation of the fee.

LIQUIDATION POLICIES

The Partnership began disposing of its Equipment in April 2005. The
Partnership's objective is to sell all of its assets and dissolve by December
31, 2006.

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.

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);

                                                                               5
<PAGE>

         (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;
         (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 had no employees in 2005 and receives administrative and other
services from a related party, Commonwealth Capital Corp. (CCC), which has 51
employees as of December 31, 2005.

ITEM 1A.    RISK FACTORS

THERE IS NO PUBLIC MARKET FOR THE UNITS, AND YOU MAY BE UNABLE TO SELL OR
TRANSFER YOUR UNITS AT A TIME AND PRICE OF YOUR CHOOSING

There exists no public market for the units, and the general partner does not
expect a public market for units to develop. The units cannot be pledged or
transferred without the consent of the General Partner. The units should be
purchased as a long-term investment only.

The General Partner has sole discretion in deciding whether we will redeem units
in the future. Consequently, you may not be able to liquidate your investment in
the event of an emergency. You must be prepared to hold your units for the life
of the fund.

LIMITED PARTNERS DO NOT HAVE THE RIGHT TO VOTE ON OR OTHERWISE APPROVE OR
DISAPPROVE OF ANY PARTICULAR INVESTMENT TO BE MADE BY THE PARTNERSHIP OR THE
TERMS OF ANY SALE OF EQUIPMENT IN LIQUIDATION.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

NOT APPLICABLE

ITEM 2:     PROPERTIES

NOT APPLICABLE

ITEM 3:     LEGAL PROCEEDINGS

NOT APPLICABLE

                                                                               6
<PAGE>

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

NOT APPLICABLE

PART II

ITEM 5:     MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
            MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

There is no public market for the Units nor is it anticipated that one will
develop. As of December 31, 2005, there were 539 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.

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

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 began accepting 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:

                                                                               7
<PAGE>

         (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;
         (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.

                                                                               8
<PAGE>

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.

Quarterly distributions in the following amounts were declared and paid to the
Limited Partners during 2005, 2004 and 2003.

     QUARTER ENDED                      2005         2004         2003
     -----------------------------   ----------   ----------   ----------
     March 31                        $        0   $  114,286   $  114,286
     June 30                             45,725      114,285      171,428
     September 30                        56,933      114,285      171,428
     December 31                         56,831       56,925      114,286
                                     ----------   ----------   ----------
                                     $  159,489   $  399,781   $  571,428
                                     ==========   ==========   ==========

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 as of March 31, 2005 and for each of the four years ending December
31, 2004. This table is qualified in its entirety 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. As described in Note 2 of the
accompanying financial statements, the Partnership adopted the liquidation basis
of accounting effective April 1, 2005. Information presented at December 31,
2005 follows this basis of accounting. The information for March 31, 2005 and
the four prior years follows the going-concern basis of accounting.

                                                                               9
<PAGE>

<TABLE>
<CAPTION>
                                                                          YEARS ENDED DECEMBER 31,
                                                ---------------------------------------------------------------------------
                                                 PERIOD ENDED
      STATEMENTS OF OPERATIONS DATA:            MARCH 31, 2005        2004           2003           2002           2001
---------------------------------------------   ---------------   ------------   ------------   ------------   ------------
<S>                                             <C>               <C>            <C>            <C>            <C>
               Lease Income                     $        28,792   $    697,530   $  1,515,990   $  2,711,579   $  3,014,643

            Net (Loss) Income                          (173,477)      (541,798)       129,629       (251,242)       422,762

            Cash Distributions                               --        403,419        577,200        519,480        692,269

Net (Loss) Income allocated to Limited
               Partners                                (173,477)      (545,836)       123,857       (256,436)       415,922

Net Income (Loss) per Limited Partner Unit                (0.38)         (1.18)          0.28          (0.55)          0.90

Cash Distribution per Limited Partner Unit                   --           0.87           1.24           1.12           1.50
</TABLE>

<TABLE>
<CAPTION>
                                                                             AS OF DECEMBER 31,
                                                ---------------------------------------------------------------------------
                                                  PERIOD ENDED
              OTHER DATA:                        MARCH 31, 2005      2004           2003           2002           2001
---------------------------------------------   ---------------   ------------   ------------   ------------   ------------
<S>                                             <C>               <C>            <C>            <C>            <C>
     Net cash (used in) provided by
          operating activities                  $        (5,421)  $   (102,527)  $     61,782   $    480,314   $  1,148,982

     Net cash provided by (used in)
          investing activities                           13,249        239,177        406,933         13,199       (374,359)

     Net cash provided by (used in)
          financing activities                            3,317       (173,323)      (464,318)      (474,577)    (1,037,917)
</TABLE>

<TABLE>
<CAPTION>
                                                                             AS OF DECEMBER 31,
                                                ---------------------------------------------------------------------------
                                                     2005             2004          2003            2002           2001
                                                ---------------   ------------   ------------   ------------   ------------
<S>                                             <C>               <C>            <C>            <C>            <C>
               Total Assets                     $        81,269   $    522,871   $  1,992,457   $  3,592,482   $  4,859,360

              Notes Payable                              32,239        115,967        728,365      1,780,299      2,380,383

            Partners' Capital                                --        138,826      1,084,443      1,532,014      2,306,900

              Net Assets in
               Liquidation                      $            --   $         --   $         --   $         --   $         --
</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.

                                                                              10
<PAGE>

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Partnership's discussion and analysis of its financial condition and results
of operations are based upon its financial statements which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires the Partnership
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. The Partnership bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

The Partnership believes that its critical accounting policies affect its more
significant judgments and estimates used in the preparation of its financial
statements.

NET ASSETS IN LIQUIDATION

As a result of the General Partner's approval of the plan of liquidation as of
April 1, 2005, we changed our basis of accounting to the liquidation basis
effective on such date. This basis of accounting is considered appropriate when,
among other things, liquidation of a company is probable and the net realizable
value of assets is reasonably determinable. Under the liquidation basis of
accounting, assets are stated at their estimated net realizable cash value and
liabilities are stated at their anticipated settlement amounts. There are
substantial risks and uncertainties associated with carrying out the liquidation
of the Partnership. The valuations presented in the accompanying Statement of
Net Assets in Liquidation represent estimates, based on present facts and
circumstances, of the net realizable values of assets and the costs associated
with carrying out the liquidation. The actual costs and values are expected to
differ from the amounts shown herein and could be greater or lesser than the
amounts recorded

REVENUE RECOGNITION

Through December 31, 2005, the Partnership's leasing operations consist
substantially of operating leases and seven 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.

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.

                                                                              11
<PAGE>

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.

LIQUIDITY AND CAPITAL RESOURCES

For the period ended March 31, 2005, the Partnership used cash flow from
operating activities of $5,000, which includes a net loss of $173,000 and
depreciation and amortization expenses of $111,000. Other non-cash activities
included in the determination of net loss include direct payments of lease
income by lessees to banks of $6,000.

The Partnership's primary source of capital for the period ended March 31, 2005
was proceeds from the sale of computer equipment of $13,000. The Partnership's
primary source of capital for the year ended December 31, 2004 was from
repayment of $231,000 made by CCC for the outstanding note, and proceeds from
the sale of computer equipment of $244,000. The Partnership's primary sources of
capital for the years ended December 31, 2003 was cash from operations of
$62,000, and proceeds from the sale of computer equipment of $423,000. The
primary uses of cash for the years ended December 31, 2004 and 2003, were for
capital expenditures for new equipment totaling $4,000 and $15,000, the payment
of acquisition fees of $1,000 and $1,000, and the payment of preferred
distributions to partners totaling $404,000 and $577,000, respectively.

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, 2005, the Partnership had future minimum rentals on
non-cancelable operating leases of $7,000 for the year ended 2006. As of
December 31, 2005, the Partnership had future minimum rentals on non-cancelable
capital leases of $6,000 for the year ended 2006. At December 31, 2005, the
outstanding debt was $32,000, with interest rates ranging from 5.95% to 6.5% and
will be payable through June 2006.

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, 2005 and 2004 was
approximately $840,000 and $1,306,000, 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, 2005
and 2004 was approximately $1,536,000 and $2,249,000, respectively. The
Partnership's share of the outstanding debt associated with this equipment at
December 31, 2005 and 2004 was approximately $0 and $700, respectively, which is
included in the Partnership's liabilities on the balance sheet, and the total
outstanding debt at December 31, 2005 and 2004 related to the equipment shared
by the Partnership was approximately $0 and $1,000, respectively.

RESULTS OF OPERATIONS

For the period ended March 31, 2005, the Partnership recognized income of
approximately $29,000 and expenses of approximately $202,000, resulting in a net
loss of approximately $173,000. In 2004 and 2003, the Partnership recognized
income of $742,000 and $1,958,000 and expenses of $1,284,000 and $1,828,000,
resulting in net loss of $542,000 for the years ended December 31, 2004, and net
income for the year ended December 31, 2003 of $130,000.

Lease income decreased to $29,000 for the period ended March 31, 2005, down from
$698,000 and $1,516,000 in 2004 and 2003, respectively, primarily due to the
fact that more lease agreements terminated than new lease agreements were
entered into every year since 2001.

The Partnership sold computer equipment with a net book value of approximately
$19,000 for the period ended March 31, 2005, for a net loss of approximately
$6,000. The Partnership sold computer equipment during the year ended December
31, 2004 and 2003 with a net book value of $298,000 and $143,000, respectively,
for a net (loss) gain of $(54,000) and $439,000 in 2004 and 2003, respectively.

                                                                              12
<PAGE>

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 decreased by 79% to $83,000,
down from $398,000 and $608,000 during the years ended December 31, 2004 and
2003, respectively. The decrease in operating expenses from 2004 to 2005 is
consistent with the liquidation activities and the expiration and sale of leases
at end of term.

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 99% to $300 during the period ended March 31,
2005, down from $36,000 and $76,000 during the years ended December 31, 2004 and
2003, respectively, which is consistent with the change in lease income.

Depreciation and amortization expenses consist of depreciation on computer
equipment, equipment acquisition fees and debt placement fees. The decrease of
86% to $110,000, during the period ended March 31, 2005, down from $770,000 and
$1,055,000 during the years ended December 31, 2004 and 2003, respectively, is
attributable to the decrease in the computer equipment portfolio being leased.

The Partnership identified specific computer equipment and associated equipment
acquisition costs, which were reevaluated due to technological changes. The
Partnership determined that no adjustment was necessary for the period ended
March 31, 2005. In 2004 and 2003 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 $40,000, and
$31,000, respectively, in the fourth quarters of 2004 and 2003 to record the
assets at their estimated fair value. Such amounts have been included in
depreciation expense in the accompanying financial statements.

NET INCOME / LOSS

Net loss for the period ended March 31, 2005 decreased to $173,000 in 2005 from
net loss of $542,000 in 2004 and net income of $130,000 in 2003.

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

COMMITMENTS AND CONTINGENCIES

         CONTRACTUAL CASH OBLIGATIONS

The following table presents our contractual cash obligations as of
December 31, 2005:

                              PAYMENTS DUE BY PERIOD
                            ---------------------------
                               TOTAL           2006
                            ------------   ------------
Installment notes payable
 due 2006:
     Principal              $     32,239   $     32,239
     Interest                        567            567
                            ------------   ------------
TOTAL                       $     32,806   $     32,806
                            ============   ============

                                                                              13
<PAGE>

                        RECENT ACCOUNTING PRONOUNCEMENTS

In May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No.
154, "Accounting Changes and Error Corrections" (SFAS No. 154) which replaces
APB No. 20 "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements - An Amendment of APB Opinion No. 28." SFAS No. 154
provides guidance on the methods issuers should use to account for and report
accounting changes and error corrections. Specifically, this statement requires
that issuers retrospectively apply any voluntary change in accounting principles
to prior period financial statements, if it is practicable to do so. This
principle replaces APB No. 20, which required that most voluntary changes in
accounting principle be recognized by including the cumulative effect of the
change to the new accounting principle on prior periods in the net income
reported by the issuer in the period in which it instituted the change. SFAS No.
154 also redefines the term "restatement" to mean the correction of an error by
revising previously issued financial statements. Unless adopted early, SFAS No.
154 is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005. The Partnership does not expect the
adoption of SFAS No. 154 to have an impact on its financial position or 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

         Our financial statements for the fiscal years ended December 31, 2005
and 2004, and the report thereon of Asher and Company, Ltd. and the report
thereon of BDO Seidman, LLP for the fiscal year ended December 31, 2003, are
included in this annual report.

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

Effective October 11, 2004, the registrant dismissed its principal independent
accounting firm, BDO Seidman, LLP. BDO Seidman, LLP's report on the registrant's
financial statements for 2003 did not contain any adverse opinion or a
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles. The decision to change accountants was
approved by the board of directors of the registrant's general partner. During
the registrant's 2003 fiscal year and the interim period prior to such
dismissal, the registrant had no disagreements with BDO Seidman, LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of BDO Seidman, LLP, would have caused BDO Seidman, LLP to make
reference to the subject matter of the disagreements in connection with its
report. Further, during the registrant's 2003 recent fiscal year and the interim
period prior to such dismissal, there occurred no reportable events, as set
forth in Item 304(a)(1)(v) of Regulation S-K.

The registrant provided BDO Seidman, LLP with a copy of this disclosure on or
prior to the date hereof and requested BDO Seidman, LLP to provide the
registrant with a letter addressed to the Securities and Exchange Commission
stating whether it agreed with the statements contained herein. A copy of such
letter will be filed by amendment to this report when and if it is received by
the registrant.

Also effective October 11, 2004, the registrant retained Asher & Company, Ltd.
of Philadelphia, Pennsylvania as its principal independent accounting firm. The
registrant believes that Asher & Company, Ltd. is an accounting firm of a size
and scope of experience better suited to the registrant's current needs than the
registrant's former accounting firm.

                                                                              14
<PAGE>

During 2003, we had not consulted with Asher & Company, Ltd. on any matter that
(i) involved the application of accounting principles to a specific completed or
contemplated transaction, or the type of audit opinion that might be rendered on
our financial statements, in each case where written or oral advice was
provided, that was an important factor considered by us in reaching a decision
as to the accounting, auditing or financial reporting issue; or (ii) was either
the subject of a disagreement or event, as that term is described in item
304(a)(1)(iv)(A) of Regulation S-X.

ITEM 9A:    CONTROLS AND PROCEDURES

Our management, under the supervision and with the participation of the
principal executive officer and principal financial officer, have evaluated the
effectiveness of our controls and procedures related to our reporting and
disclosure obligations as of December 31, 2005, which is the end of the period
covered by this Annual Report on Form 10-K. Based on that evaluation, the
principal executive officer and principal financial officer have concluded that
our disclosure controls and procedures are sufficient to provide that (a)
material information relating to us, including our consolidated subsidiaries, is
made known to these officers by our and our consolidated subsidiaries other
employees, particularly material information related to the period for which
this periodic report is being prepared; and (b) this information is recorded,
processed, summarized, evaluated and reported, as applicable, within the time
periods specified in the rules and forms promulgated by the Securities and
Exchange Commission.

ITEM 9B:    OTHER INFORMATION

     NOT APPLICABLE

ITEM 10:    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

GENERAL

The Partnership does not have any Directors or executive officers.

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 &
Growth Fund I, Commonwealth Income & Growth Fund III, Commonwealth Income &
Growth Fund IV, Commonwealth Income & Growth Fund V, and Commonwealth Income &
Growth Fund VI. 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, Treasurer and Chief Executive
                           Officer of CCC, CCSC, and Commonwealth Income &
                           Growth Fund, Inc. ("CIGF, Inc.)

Kimberly A. Springsteen    Director, Secretary, President & Chief Operations
                           Officers of CCC, CCSC and CIGF, Inc. Chief Compliance
                           Officer of CCSC.

Henry J. Abbott            Director, Senior Vice President & Portfolio Manager
                           of CCC, CCSC and CIGF, Inc.

                                                                              15
<PAGE>

Lynn A. Franceschina       Controller, Senior Vice President of CCC, CCSC and
                           CIGF, Inc.

Katrina M. Mason           Due Diligence Officer, Senior Vice President of CCC,
                           CCSC and CIGF, Inc.

Jay Dugan                  Chief Technology Officer, Senior Vice President of
                           CCC, CCSC and CIGF, Inc.

Donald Bachmayer           Accounting Manager, Vice President of CCC, CCSC, and
                           CIGF, Inc.

Mark Hershenson            Broker Services Manager, Vice President of CCC, CCSC
                           and CIGF, Inc.

James Pruett               Compliance Officer, Assistant Vice President of CCC,
                           CCSC, and CIGF, Inc.

Donnamarie D. Abbott       Investor Services Manager, Assistant Vice President
                           of CCC, and CIGF, Inc.

         GEORGE S. SPRINGSTEEN, age 71, is a founding stockholder, Chairman of
the Board and Chief Executive Officer of Commonwealth Capital Corp. since 1978.
In addition, Mr. Springsteen serves as Chairman of the Board and Chief Executive
Officer and registered principal of the broker/dealer, Commonwealth Capital
Securities Corp and the General Partner, Commonwealth Income & Growth Fund Inc.
He oversees numerous equipment investment portfolios and is responsible for
business development. Mr. Springsteen and his wife, Kim, are the sole
shareholders of the parent company and its affiliates. Mr. Springsteen oversees
the Portfolio Advisory Committee, the Audit Committee, the Disaster Recovery
Committee and the Facilities Committee. Before starting Commonwealth, Mr.
Springsteen managed a portfolio of $120 million at Granite Computer Corp.,
bought their portfolio and founded his own firm. Mr. Springsteen attended the
University of Delaware and holds his NASD Series 22, 63 and 39 licenses. Mr.
Springsteen is a member of the Equipment Leasing Association and a founding
member of the Computer Dealers Leasing Association prior to, as well as a member
of the Investment Program Association. (Mr. Springsteen is the spouse of
Kimberly A. Springsteen)

         KIMBERLY A. SPRINGSTEEN, age 46, joined Commonwealth in 1997, as a
founding registered principal and Chief Compliance Officer of its broker/dealer,
Commonwealth Capital Securities Corp. and serves as Director and Secretary,
President and Chief Operating Officer of the parent and its affiliates. Ms.
Springsteen is responsible for oversight of daily operations, due diligence and
business development. Ms. Springsteen also oversees the Portfolio Advisory
Committee, the Audit Committee, the Disaster Recovery Committee and the
Facilities Committee. Ms. Springsteen has developed and presented numerous
motivational, informational and sales training workshops over the past 25 years.
Prior to Commonwealth, Ms. Springsteen served as Senior Vice President &
Marketing Manager in the Alternative Investments Department of Wheat
First/Butcher & Singer, a broker/dealer headquartered in Richmond, Virginia,
where she raised over $450,000,000 of capital in the real estate, equipment
leasing, tax credit and energy-related industries. Ms. Springsteen holds her
NASD Series 7, 63 and 39 licenses and is a member of the Equipment Leasing
Association, the Financial Planners Association and serves on the Board of
Trustees for the Investment Program Association. Ms. Springsteen is the wife of
George Springsteen and is co-shareholder of the parent and its affiliates.

         HENRY J. ABBOTT, age 55, joined Commonwealth in 1998, as a Portfolio
Manager. Mr. Abbott serves as a Director, Senior Vice President and Portfolio
Manager of the parent and its affiliates. Mr. Abbott is a registered principal
of the broker/dealer. Mr. Abbott is responsible for lease acquisitions,
equipment dispositions and portfolio review. Additionally, Mr. Abbott is also
responsible for oversight of residual valuation, due diligence, equipment
inspections, negotiating renewal and purchase options and remarketing off lease
equipment. Mr. Abbott serves as senior member on the Portfolio Advisory
Committee, the Audit Committee, the Disaster Recovery Committee and the
Facilities Committee. Prior to Commonwealth, Mr. Abbott has been active in the
commercial lending industry, working primarily on

                                                                              16
<PAGE>

asset-backed transactions for more than 30 years. Mr. Abbott attended St. John's
University and holds his NASD Series 7, 63 and 24 licenses. Mr. Abbott was a
founding partner of Westwood Capital LLC in New York, a Senior Vice President
for IBJ Schroeder Leasing Corporation and has managed a group specializing in
the provision of operating lease finance programs in the high technology sector.
Mr. Abbott brings extensive knowledge and experience in leasing and has managed
over $1.5 billion of secured transactions. Mr. Abbott is a member of the
Equipment Leasing Association and the Investment Program Association.

         LYNN A. FRANCESCHINA, age 34, joined Commonwealth in 2001 and serves as
Senior Vice President and Controller of the parent and its affiliates. Ms.
Franceschina is responsible for the oversight of all accounting, cash
management, financial reporting and audit and tax preparation functions. During
the period of March 2004 to October 2004, Ms. Franceschina was employed with
Wilmington Trust Corp., where she was a part in the development of policies and
procedures related to Sarbanes Oxley and its documentation. Prior to
Commonwealth, in 1994 until 1999, Ms. Franceschina served as a Senior Accountant
with Duquesne University, and from 1999 to 2000, a Senior Financial Analyst for
Environ Products. Ms. Franceschina attended Robert Morris University and holds a
Bachelor of Science in Accounting. Ms. Franceschina serves on the Portfolio
Advisory Committee and the Disaster Recovery Committee, as well as a member of
the Equipment Leasing Association, the Investment Program Association and the
Institute of Management Accountants.

         KATRINAM. MASON, age 33, joined Commonwealth in 2002 and serves as
Senior Vice President, Broker/Dealer Relations Manager and Due Diligence Manager
of the parent and its affiliates. Ms. Mason is a registered principal of the
broker/dealer. Ms. Mason is responsible for managing due diligence and
broker/dealer development, as well as coordination of the national sales and
marketing effort, syndication and product development. Ms. Mason serves on the
Disaster Recovery Committee and the Website Committee. Prior to Commonwealth,
Ms. Mason worked at ICON Securities, an equipment leasing sponsor, from 1997 to
2002 and served as President from 2001 to 2002. Prior to that, Ms. Mason served
as a Regional Marketing Director of Textainer Capital, an equipment-leasing
sponsor. Ms. Mason attended the University of California at Santa Barbara and
holds a Bachelor of Arts and also attended University of San Francisco and holds
an MBA. Ms Mason holds her NASD Series 7, 22, 63 & 24 licenses. Ms. Mason is a
member of the Equipment Leasing Association, the Financial Planners Association
and the Investment Program Association.

         JAY DUGAN, age 57, joined Commonwealth in 2002 and serves as Senior
Vice President and Chief Technology Officer of the parent and its affiliates.
Mr. Dugan is responsible for the information technology vision, security and
operation and ongoing development, including network configurations, protection
of corporate assets and maximizing security and efficiency of information flow.
Prior to Commonwealth, Mr. Dugan founded First Securities USA, an NASD member
firm, in 1988 and operated that firm through 1998. From 1999 until 2002, Mr.
Dugan was an independent due diligence consultant until he came to Commonwealth
to develop that area of the firm. Mr. Dugan attended St. Petersburg College and
holds an AS Degree in Computer Networking Technology. Mr. Dugan is a Microsoft
Certified Systems Engineer, Microsoft Certified Database Administrator and
Comp-Tia Certified Computer Technician. Mr. Dugan is a senior member of the
Disaster Recovery Committee, as well as oversight member of the Website
Committee.

         DONALD A. BACHMAYER, age 41, joined Commonwealth in 2004 and serves as
Vice President and Accounting Manager of the General Partner, CCC and certain of
its subsidiaries where he has been employed since 2004. Mr. Bachmayer is
responsible for financial reporting and analysis, cash management and tax
compliance. He is a member of the Portfolio Advisory Committee. Prior to joining
Commonwealth, from 2002 to 2004, Mr. Bachmayer served as Accounting Supervisor
for LEAF Financial, an equipment-leasing sponsor, where his responsibilities
included cash management, commission and syndication reporting. From 1997 to
2001, Mr. Bachmayer was a senior accountant/auditor with Fishbein & Company,
P.C., certified public accountants, with responsibilities including audit,
financial reporting, cash management, commission and syndication reporting, and
tax preparation. Mr. Bachmayer attended LaSalle University and holds a Bachelor
of Science in Accounting.

         MARK HERSHENSON, age 40, joined Commonwealth in 2002 and serves as Vice
President and Broker Services Manager of the parent and its affiliates. Mr.
Hershenson is responsible for management of

                                                                              17
<PAGE>

all custodial relationships, broker services in the areas of product education
and production goals, wholesaler scheduling/support and internal sales staff.
Prior to Commonwealth, Mr. Hershenson served as part of a financial planning
practice at American United Life from 1999 through 2002. He has written a book
for the Florida Insurance Commissioner on how to sell insurance products.
Additionally, in 1991 through 1998, Mr. Hershenson served as sales trainer fat
MetLife for over 100 registered representatives. Mr. Hershenson attended
Stonehill College and holds a Bachelor's in Psychology, with a concentration in
Marketing/Organizational Behaviorism and Master's level coursework in Financial
Planning though American College. Mr. Hershenson holds his NASD Series 6, 7 and
63 licenses. Mr. Hershenson is a member of the Equipment Leasing Association and
the Investment Program Association.

         JAMES PRUETT, age 40, joined Commonwealth in 2002 and serves as
Assistant Vice President and Compliance Officer of the parent and its
affiliates. Mr. Pruett is responsible for management of regulatory policies and
procedures, assisting in compliance internal audit, associate regulatory
filings, broker/dealer registrations, state and broker/dealer financial
regulatory reporting requirements. Mr. Pruett assists in the management of
shareholder records and updates. Mr. Pruett is a member of the Website
Committee. Mr. Pruett holds his NASD Series 22 and 63 licenses. Prior to joining
Commonwealth, Mr. Pruett served as Managing Editor/Associate Publisher for
Caliber Entertainment, a publishing and entertainment licensing company. Mr.
Pruett's responsibilities included oversight of production of publishing
library, as well as serving as Editor-in-Chief for all publications and
additionally served as Media Relations Liaison. Mr. Pruett is a member of the
Equipment Leasing Association and the Investment Program Association.

         DONNAMARIE D. ABBOTT, age 47, joined Commonwealth in 2001 and serves as
Assistant Vice President and Investor Services Manager of the parent and its
affiliates. Ms. Abbott is responsible for management of daily operations in
Investor Services, from pre-formation stage through issuance of investors' final
distribution, communication, audited financial report, including fund masters,
blue sky coordination, subscription processing, distributions, transfers of
interest, redemptions, reporting and tax reporting. Ms. Abbott is a member of
the Office Development Committee, the Website Committee and the Disaster
Recovery Committee. Ms. Abbott holds her NASD Series 22 and 63 licenses. Prior
to joining Commonwealth, Ms. Abbott served as a Pennsylvania licensed realtor.
Ms. Abbott is a member of the Equipment Leasing Association and a member of the
Investment Program Association.

         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.

         The Partnership has no audit committee financial expert, as defined
under Section 229.401 of the Exchange Act, serving on its audit committee. An
audit committee is not required because the Partnership is not a listed security
as defined by Section 240.10A-3; therefore, no audit committee financial expert
is required.

CODE OF ETHICS

         In view of the fiduciary obligation that the General Partner has to the
Partnership, the General Partner believes an adoption of a formal code of ethics
is unnecessary and would not benefit the Partnership, particularly, in light of
Partnership's limited business activities.

ITEM 11:    EXECUTIVE COMPENSATION

         NOT APPLICABLE

ITEM 12:    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                                                                              18
<PAGE>

         NOT APPLICABLE

ITEM 13:    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         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.

<TABLE>
<CAPTION>
                                                                           AMOUNT        AMOUNT         AMOUNT
ENTITY RECEIVING                                                          INCURRED      INCURRED       INCURRED
  COMPENSATION                        TYPE OF COMPENSATION               DURING 2005   DURING 2004    DURING 2003
-------------------      ---------------------------------------------   -----------   -----------    -----------
<S>                      <C>                                             <C>           <C>            <C>
                                       OPERATIONAL AND SALE
                                      OR LIQUIDATION STAGES

The General Partner      REIMBURSABLE  EXPENSES.  The General and        $   105,000   $   331,000    $   371,000
and its Affiliates       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 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        $         0   $     1,000    $     1,000
                         Acquisition 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      EQUIPMENT  MANAGEMENT FEE. A monthly fee        $     4,000   $    36,000    $    76,000
                         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) five percent
                         of the Gross Lease Revenues attributable
                         to Equipment which is subject to
                         Operating Leases.
</TABLE>

                                                                              19
<PAGE>

<TABLE>
<CAPTION>
<S>                      <C>                                             <C>           <C>            <C>
The General Partner      PARTNERSHIP  INCOME  AND  DISTRIBUTIONS.        $         0   $     4,038    $     5,772
                         The General Partner 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>

         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.

         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.

                                                                              20
<PAGE>

         "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.

         "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.

                                                                              21
<PAGE>

         "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.

         "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

                                                                              22
<PAGE>

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.

         "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 II, 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.

ITEM 14:    PRINCIPAL ACCOUNTING FEES AND SERVICES

AUDIT FEES

The aggregate fees billed for each of the fiscal years ended December 31, 2005
and 2004 for professional services rendered by the Partnership's independent
registered public account firm for the audit of our annual financial statements
and review of the financial statements included in our Form 10-Q or services
that are

normally provided by the accountant in connection with statutory and regulatory
filings or engagements for those fiscal years were $32,000 and $32,000,
respectively.

                                                                              23
<PAGE>

AUDIT-RELATED FEES

The aggregate fees billed in the fiscal years ended December 31, 2005 and 2004
for assurance and related services by the Partnership's independent registered
public account firm that are reasonably related to the performance of the audit
or review of the registrant's financial statements and are not reported under
the paragraph captioned "Audit Fees" above are $0 and $0, respectively.

TAX FEES

The aggregate fees billed in the fiscal years ended December 31, 2005 and 2004
for professional services rendered by the Partnership's independent registered
public account firm for tax compliance, tax advice and tax planning were $0 and
$0, respectively.

ALL OTHER FEES
The aggregate fees billed in the fiscal years ended December 31, 2005 and 2004
for products and services provided by the Partnership's independent registered
public account firm, other than the services reported above under other captions
of this Item 14 are $0 and $0, respectively.

PRE-APPROVAL POLICIES AND PROCEDURES

All audit related services, tax planning and other services were pre-approved by
the Board of Directors of the General Partner, which concluded that the
provision of such services by the Partnership's independent registered public
account firm was compatible with the maintenance of that firm's independence in
the conduct of its auditing functions. The policy of the General Partner
provides for pre-approval of these services and all audit related, tax or other
services not prohibited under Section 10A(g) of the Securities Exchange Act of
1934, as amended to be performed for us by our independent auditors, subject to
the de minimus exception described in Section 10A(i)(1)(B) of the Exchange Act.
on an annual basis and on individual engagements if minimum thresholds are
exceeded.

The percentage of audit-related, tax and other services that were approved by
the board of directors is zero (-0-).

                                                                              24
<PAGE>

PART IV

ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K

(a)(1)  Financial Statements

        Report of Independent Registered Public Accounting Firm          F-1

        Report of Independent Registered Public Accounting Firm          F-2

        Statement of Net Assets in Liquidation at
         December 31, 2005                                               F-3

        Balance Sheet as of December 31, 2004                            F-4

        Statement of Changes in Net Assets in Liquidation at
         December 31, 2005                                               F-5

        Statements of Operations for December 31, 2003 through
         the three months ended March 31, 2005                           F-6

        Statements of Partners Capital (Deficit) for December 31, 2003
         through the three months ended March 31, 2005                   F-7

        Statements of Cash Flows for December 31, 2003 through the
         year ended December 31, 2005                                    F-8-9

        Notes to Financial Statements                                    F-10-22

(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.

         * Incorporated by reference from the Partnership's Registration
Statement on Form S-1 (Registration No. 33-89476)

(b)      Reports on Form 8-K

(c)      Exhibits.

         31.1     Rule 13a-14(a)/15d-14(a) Certifications by the Principal
Executive Officer

         31.2     Rule 13a-14(a)/15d-14(a) Certifications by the Principal
Financial Officer

         32       Section 1350 Certifications by the Principal Executive Officer
and Principal Financial Officer

                                                                              25
<PAGE>

                                   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, 2006 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,
                                               Chief Executive Officer

         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, 2006.

SIGNATURE                                       CAPACITY
--------------------------   ---------------------------------------------------

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

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

                                                                              26

<PAGE>

                                                             COMMONWEALTH INCOME
                                                                & GROWTH FUND II


                                    YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
<PAGE>

                                                             COMMONWEALTH INCOME
                                                                & GROWTH FUND II


                                                            FINANCIAL STATEMENTS
                                    YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

<PAGE>

                                            COMMONWEALTH INCOME & GROWTH FUND II

                                                                        CONTENTS

     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                1

     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                2

     FINANCIAL STATEMENTS
         Statement of net assets in liquidation                             3
         Balance sheet                                                      4
         Statement of changes in net assets in liquidation                  5
         Statements of operations                                           6
         Statements of partners' capital (deficit)                          7
         Statements of cash flows                                         8-9

     NOTES TO FINANCIAL STATEMENTS                                      10-23

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Partners
Commonwealth Income & Growth Fund II
Exton, Pennsylvania

        We have audited the statements of net assets in liquidation of
Commonwealth Income & Growth Fund II ("Partnership") as of December 31, 2005,
and the related statement of changes in net assets in liquidation for the period
from April 1, 2005 to December 31, 2005. In addition, we have audited the
balance sheet as of December 31, 2004 and the related statements of income,
Partners' capital and cash flows for the year ended December 31, 2004 and the
related statements of income, Partners' capital and cash flows for the period
from January 1, 2005 to March 31, 2005. 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 the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Partnership is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Partnership's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, 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.

        As more fully described in Note 2, the Partnership is currently being
liquidated. As a result, the Partnership has changed its basis of accounting for
periods subsequent to March 31, 2005 from the going-concern basis to the
liquidation basis.

        In our opinion, the financial statements referred to above present
fairly, in all material respects, the net assets in liquidation of Commonwealth
Income & Growth Fund II as of December 31, 2005 and the changes in its net
assets in liquidation for the period from April 1, 2005 to December 31, 2005,
its financial position as of December 31, 2004, and the results of its
operations and cash flow the year ended December 31, 2004 and for the period
from January 1, 2005 to March 31, 2005 in conformity with accounting principles
generally accepted in the United States of America applied on the bases
described in the preceding paragraph.

<PAGE>

        As described in Note 2, these financial statements as of December 31,
2005 and for the period form April 1, 2005 to December 31, 2005 have been
prepared on the liquidation basis of accounting, which requires management to
make significant assumptions and estimates regarding the fair value of assets
and the estimate of liquidating costs to be incurred. Because of the inherent
uncertainty related to these estimates and assumptions, there will likely be
differences between these estimates and the actual results and those differences
may be material.


/s/ ASHER & COMPANY, Ltd.

Philadelphia, Pennsylvania
March 29, 2006

<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Partners
Commonwealth Income & Growth Fund II
Exton, Pennsylvania

We have audited the accompanying statements of operations, partners' capital,
and cash flows of Commonwealth Income & Growth Fund II for the year ended
December 31, 2003. 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 audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Commonwealth
Income & Growth Fund II for the year ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States.

                                                /s/ BDO Seidman, LLP

Philadelphia, Pennsylvania
March 12, 2004

<PAGE>

                                            COMMONWEALTH INCOME & GROWTH FUND II

                                          STATEMENT OF NET ASSETS IN LIQUIDATION

<TABLE>
<CAPTION>
December 31,                                                                       2005
-------------------------------------------------------------------------     --------------
<S>                                                                           <C>
ASSETS

Cash and cash equivalents                                                     $        3,841
Lease income receivable, net of reserves of $0 as of December 31, 2005                13,239
Net investment in direct financing lease                                              16,931
Other receivables - Affiliated limited partnerships                                   12,782
Other receivables - Commonwealth Capital Corp.                                         6,204
Prepaid expenses                                                                          25
                                                                              --------------
                                                                                      56,022
                                                                              --------------

Computer equipment, at cost                                                        1,890,243
Accumulated depreciation                                                          (1,865,405)
                                                                              --------------
                                                                                      24,838
                                                                              --------------

Equipment acquisition costs and deferred expenses, net                                   409
                                                                              --------------

TOTAL ASSETS                                                                  $       81,269
                                                                              ==============

LIABILITIES AND NET ASSETS

LIABILITIES

Accounts payable                                                                      21,499
Accounts payable - General Partner                                                    27,531
Notes payable                                                                         32,239
                                                                              --------------
TOTAL LIABILITIES                                                             $       81,269
                                                                              --------------

NET ASSETS IN LIQUIDATION                                                     $           --

                                                                              --------------

NET ASSETS IN LIQUIDATION PER EQUIVALENT LIMITED PARTNERSHIP UNIT             $           --
                                                                              --------------
WEIGHTED AVERAGE NUMBER OF EQUIVALENT
LIMITED PARTNERSHIP UNITS OUTSTANDING DURING THE YEAR                                460,067
                                                                              ==============
</TABLE>

                                 See accompanying notes to financial statements.

<PAGE>

                                            COMMONWEALTH INCOME & GROWTH FUND II

                                                                   BALANCE SHEET

<TABLE>
<CAPTION>
December 31,                                                                       2004
-------------------------------------------------------------------------     --------------
<S>                                                                           <C>
ASSETS

Cash and cash equivalents                                                     $        1,085
Lease income receivable, net of reserves of $0 at December 31, 2004                    9,478
Net investment in direct financing leases                                             86,487
Accounts receivable, affiliated limited partnerships                                  16,792
Deposits                                                                                  25
                                                                              --------------
                                                                                     113,867
                                                                              --------------

COMPUTER EQUIPMENT, at cost                                                        2,850,669
ACCUMULATED DEPRECIATION                                                          (2,460,366)
                                                                              --------------
                                                                                     390,303
                                                                              --------------
EQUIPMENT ACQUISITION COSTS AND DEFERRED EXPENSES, net of
     accumulated amortization of $64,953 at December 31, 2004                          2,601
ACCOUNTS RECEIVABLE, COMMONWEALTH CAPITAL CORP                                        16,100
                                                                              --------------

TOTAL ASSETS                                                                  $      522,871
                                                                              ==============

LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES

     Accounts payable                                                         $       51,515
     Accounts payable, General Partner                                                79,488
     Accounts payable, Commonwealth Capital Corp                                      42,499
     Unearned lease income                                                            94,576
     Notes payable                                                                   115,967
                                                                              --------------
TOTAL LIABILITIES                                                                    384,045
                                                                              --------------

PARTNERS' CAPITAL

     General Partner                                                                   1,000
     Limited Partners                                                                137,826
                                                                              --------------
TOTAL PARTNERS' CAPITAL                                                              138,826
                                                                              --------------

TOTAL LIABILITIES AND PARTNERS' CAPITAL                                       $      522,871
                                                                              ==============
</TABLE>

                                 See accompanying notes to financial statements.

<PAGE>

                                            COMMONWEALTH INCOME & GROWTH FUND II

                               STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION

<TABLE>
<CAPTION>
For the period April 1 to December 31,                                             2005
-------------------------------------------------------------------------     --------------
<S>                                                                           <C>
Net Assets in liquidation - beginning                                         $      (34,651)

Lease income                                                                          52,626
Interest and other                                                                      (407)
Gain on sale of computer equipment                                                    37,640

Operating, excluding depreciation                                                    (94,865)
Equipment management fee - General Partner                                            (3,531)
Interest                                                                              (2,675)
Depreciation and amortization                                                       (209,899)

Distributions to Investors                                                          (161,099)
Contributions from CCC                                                               189,169
                                                                              --------------
Changes in estimated liquidation values
  of assets and liabilities                                                          227,692
                                                                              --------------

NET ASSETS IN LIQUIDATION - ENDING                                            $           --
                                                                              ==============
</TABLE>

                                 See accompanying notes to financial statements.

<PAGE>

                                            COMMONWEALTH INCOME & GROWTH FUND II

                                                        STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                        PERIOD           Year ended        Year ended
                                                                        ENDED           December 31,      December 31,
                                                                    MARCH 31, 2005          2004              2003
                                                                   ---------------    ---------------   ---------------
<S>                                                                <C>                <C>               <C>
INCOME
     Lease                                                         $        28,792    $       697,530   $     1,515,990
     Interest and other                                                         --             44,781             2,466
     Gain on sale of equipment                                                  --                 --           439,124
                                                                   ---------------    ---------------   ---------------

TOTAL INCOME                                                                28,792            742,311         1,957,580
                                                                   ---------------    ---------------   ---------------

EXPENSES

     Operating, excluding depreciation                                      83,491            398,197           608,439
     Equipment management fee, General Partner                                 300             36,016            75,934
     Depreciation                                                          109,294            728,595           992,234
     Amortization of equipment acquisition costs and deferred
         expenses                                                            1,473             41,321            62,719
     Interest                                                                2,093             26,255            88,625
     Loss on sale of equipment                                               5,618             53,725                --
                                                                   ---------------    ---------------   ---------------

TOTAL EXPENSES                                                             202,269          1,284,109         1,827,951
                                                                   ---------------    ---------------   ---------------

NET (LOSS) INCOME                                                  $      (173,477)   $      (541,798)  $       129,629
                                                                   ===============    ===============   ===============

NET (LOSS) INCOME PER EQUIVALENT LIMITED PARTNERSHIP UNIT          $         (0.38)   $         (1.18)  $          0.28

WEIGHTED AVERAGE NUMBER OF EQUIVALENT
     LIMITED PARTNERSHIP UNITS OUTSTANDING DURING THE YEAR                 460,067            460,067           460,067
                                                                   ===============    ===============   ===============
</TABLE>

                                 See accompanying notes to financial statements.

<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, 2002               50        460,067   $      1,000    $  1,531,014    $  1,532,014

Net income                               --             --          5,772         123,857         129,629
Distributions                            --             --         (5,772)       (571,428)       (577,200)
                               ------------   ------------   ------------    ------------    ------------

BALANCE, December 31, 2003               50        460,067          1,000       1,083,443       1,084,443

Net income (loss)                        --             --          4,038        (545,836)       (541,798)
Distributions                            --             --         (4,038)       (399,781)       (403,819)
                               ------------   ------------   ------------    ------------    ------------

BALANCE, December 31, 2004               50        460,067          1,000         137,826         138,826

Net income (loss)                        --             --             --        (173,477)       (173,477)
Distributions                            --             --             --              --              --
                               ------------   ------------   ------------    ------------    ------------

BALANCE, March 31, 2005                  50        460,067   $      1,000    $    (35,651)   $    (34,651)
                               ============   ============   ============    ============    ============
</TABLE>

                                 See accompanying notes to financial statements.

<PAGE>

                                            COMMONWEALTH INCOME & GROWTH FUND II

                                                        STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                            PERIOD ENDED         Year ended       Year ended
                                                              MARCH 31,         December 31,     December 31,
                                                                2005               2004             2003
                                                          ---------------    ---------------    ---------------
<S>                                                       <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss)                                       $      (173,477)   $      (541,798)   $       129,629
  Adjustments to reconcile net income (loss) to
   net cash provided by (used in) operating activities
    Depreciation and amortization                                 110,767            769,917          1,054,953
    Amortization of unearned lease income                              --                 --            (10,945)
    (Gain) loss on sale of computer
      equipment                                                     5,618             53,725           (439,124)
    Other noncash activities included in
      determination of net income (loss)                           (5,951)          (574,117)          (995,568)
    Changes in assets and liabilities
      Lease income receivable                                       1,173             (4,928)           404,966
      Minimum lease receivables                                     1,155              4,620              3,881
      Accounts receivable, affiliated limited
       partnerships                                                10,184             (8,904)               546
      Deposits                                                         --                (25)                --
      Prepaid fees                                                     --              3,200              3,019
      Accounts payable                                            (11,984)            (2,091)           (19,052)
      Accounts payable, General Partner                            27,853            166,777             (7,392)
      Accounts payable, Commonwealth Capital
        Corp.                                                      30,822             42,499                 --
      Other accrued expenses                                           --             (5,938)            (1,424)
      Unearned lease income                                        (1,581)            (5,464)           (61,707)
                                                          ---------------    ---------------    ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                (5,421)          (102,527)            61,782
                                                          ---------------    ---------------    ---------------
</TABLE>

<PAGE>

                                            COMMONWEALTH INCOME & GROWTH FUND II

                                                        STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                     PERIOD ENDED        Year ended        Year ended
                                                       MARCH 31,        December 31,      December 31,
                                                         2005               2004              2003
                                                   ---------------    ---------------    ---------------
<S>                                                <C>                <C>                <C>
CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures                             $            --    $        (4,049)   $       (15,000)
  Net proceeds from sale of computer
   equipment                                                13,249            244,072            422,533
  Equipment acquisition fees paid to the
   General Partner                                              --               (846)              (600)
                                                   ---------------    ---------------    ---------------

  NET CASH PROVIDED BY INVESTING ACTIVITIES                 13,249            239,177            406,933
                                                   ---------------    ---------------    ---------------

CASH FLOWS FROM FINANCING ACTIVITIES

  Distributions to partners                                     --           (403,819)          (577,200)
  Accounts receivable - Commonwealth
    Capital Corp.                                            3,317            230,667            112,882
  Debt placement fee paid to the General
    Partner                                                     --               (171)                --
                                                   ---------------    ---------------    ---------------

NET CASH USED IN FINANCING ACTIVITIES                        3,317           (173,323)          (464,318)
                                                   ---------------    ---------------    ---------------

NET INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS                                                11,145            (36,673)             4,397

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR               1,085             37,758             33,361
                                                   ---------------    ---------------    ---------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD         $        12,230    $         1,085    $        37,758
                                                   ===============    ===============    ===============
</TABLE>

                                 See accompanying notes to financial statements.

<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).

                         The Partnership began liquidation effective April 1,
                         2005. 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 will be made by
                         the General Partner after consideration of all relevant
                         factors (including prevailing economic 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.

                         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 2005, annual cash distributions to
                         limited partners were made at rate of 1.7% of their
                         original contributed capital. During 2004, annual cash
                         distributions to limited partners were made at rate of
                         4.3% of their original contributed capital. During
                         2003, annual cash distributions to limited partners
                         were made at a rate of 6.2% of their original
                         contributed capital. Distributions during 2005 reflect
                         an annual return of capital in the amount of
                         approximately $0.35 per weighted average number of
                         limited partnership units outstanding during the

<PAGE>

                                            COMMONWEALTH INCOME & GROWTH FUND II

                                                   NOTES TO FINANCIAL STATEMENTS

                         year. Distributions during 2004 reflect an annual
                         return of capital in the amount of approximately $0.87
                         per weighted average number of limited partnership
                         units outstanding during the year. Distributions during
                         2003 reflect an annual return of capital in the amount
                         of approximately $1.25 per weighted average number of
                         limited partnership units outstanding during the year.

2.   LIQUIDATION BASIS   As a result of the General Partner's approval of the
                         plan of liquidation as of April 1, 2005, we changed our
                         basis of accounting to the liquidation basis effective
                         on such date. This basis of accounting is considered
                         appropriate when, among other things, liquidation of a
                         company is probable and the net realizable value of
                         assets is reasonably determinable. Under the
                         liquidation basis of accounting, assets are stated at
                         their estimated net realizable cash value and
                         liabilities are stated at their anticipated settlement
                         amounts. There are substantial risks and uncertainties
                         associated with carrying out the liquidation of the
                         Partnership. The valuations presented in the
                         accompanying Statement of Net Assets in Liquidation
                         represent estimates, based on present facts and
                         circumstances, of the net realizable values of assets
                         and the costs associated with carrying out the
                         liquidation. The actual costs and values are expected
                         to differ from the amounts shown herein and could be
                         greater or lesser than the amounts recorded.

                         In presenting our Statement of Net Assets in
                         Liquidation at December 31, 2005, we recorded a $7,500
                         increase to assets. This increase represents the
                         present value of future lease payments of leases.
                         Included in the adjustment to net assets recorded in
                         connection with the change from the going-concern to
                         the liquidation basis of accounting, we recorded $8,000
                         of accrued costs of liquidation representing the
                         estimate of the costs to be incurred during
                         liquidation. Payables to affiliates were decreased by
                         $221,000 to represent the expected settlement value of
                         these liabilities.

3.   SUMMARY OF          REVENUE RECOGNITION
     SIGNIFICANT

<PAGE>

                                            COMMONWEALTH INCOME & GROWTH FUND II

                                                   NOTES TO FINANCIAL STATEMENTS

     ACCOUNTING          Through December 31, 2005 the Partnership's leasing
     POLICIES            operations consist substantially of operating leases
                         and seven 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 U.S. 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.

                         FAIR VALUE OF FINANCIAL INSTRUMENTS

                         Statement of Financial Accounting Standards ("SFAS")
                         No.107, Disclosures About Fair Value of Financial
                         Instruments, requires disclosure of the fair value of
                         certain instruments. The carrying values of cash,
                         receivables and payables approximate fair value due to
                         the short term maturity of these instruments. For debt,
                         the carrying amounts approximate fair value because the
                         interest rates approximate current market rates.

                         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

<PAGE>

                                            COMMONWEALTH INCOME & GROWTH FUND II

                                                   NOTES TO FINANCIAL STATEMENTS

                         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 2005 and 2004,
                         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 $9,000, $40,000, and $31,000 in the
                         fourth quarter of 2005, 2004, and 2003, respectively to
                         record the assets at their estimated fair value. Such
                         amounts have been included in depreciation expense in
                         the accompanying 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. Cash at December 31, 2005 and 2004 was
                         held in the custody of one financial institution. At
                         times, the balances may exceed federally insured
                         limits. The Partnership mitigates this risk by
                         depositing funds with a major financial institution.
                         The Partnership has not experienced any losses in such
                         accounts, and believes it is not exposed to any
                         significant credit risk.

                         ACCOUNTS RECEIVABLE

                         Accounts receivable includes current accounts
                         receivable, net of allowances and other accruals. The
                         Partnership regularly reviews the collectability of its
                         receivables and the credit worthiness of its

<PAGE>

                                            COMMONWEALTH INCOME & GROWTH FUND II

                                                   NOTES TO FINANCIAL STATEMENTS

                         customers and adjusts its allowance for doubtful
                         accounts accordingly. The Partnership determined that
                         no allowance was necessary at December 31, 2005 and
                         2004.

                         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.

                         NET ASSETS IN LIQUIDATION PER EQUIVALENT LIMITED
                         PARTNERSHIP UNIT

                         In connection with the conversion from the
                         going-concern basis of accounting to the liquidation
                         basis, the net assets in liquidation per equivalent
                         limited partnership unit is computed based upon net
                         assets in liquidation allocated to the limited partners
                         and the weighted average number of equivalent limited
                         partner units outstanding during the period.

                         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.

<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.

                         FORGIVENESS OF RELATED PARTY PAYABLES

                         In accordance with Accounting Principles Board Opinion
                         No. 26, Early Extinguishment of Debt, the Partnership
                         accounts for forgiveness of related party payables as
                         partner's capital transactions.

                         RECENT ACCOUNTING PRONOUNCEMENTS

                         In May 2005, the Financial Accounting Standards Board
                         (FASB) issued SFAS No. 154, "Accounting Changes and
                         Error Corrections" (SFAS No. 154) which replaces APB
                         No. 20 "Accounting Changes" and SFAS No. 3, "Reporting
                         Accounting Changes in Interim Financial Statements - An
                         Amendment of APB Opinion No. 28." SFAS No. 154 provides
                         guidance on the methods issuers should use to account
                         for and report accounting changes and error
                         corrections. Specifically, this statement requires that
                         issuers retrospectively apply any voluntary change in
                         accounting principles to prior period financial
                         statements, if it is practicable to do so. This
                         principle replaces APB No. 20, which required that most
                         voluntary changes in accounting principle be recognized
                         by including the cumulative effect of the change to the
                         new accounting principle on prior periods in the net
                         income reported by the issuer in the period in which it
                         instituted the change. SFAS No. 154 also redefines the
                         term "restatement" to mean the correction of an error
                         by revising previously issued financial statements.
                         Unless adopted early, SFAS No. 154 is effective for
                         accounting changes and corrections of errors made in
                         fiscal years beginning after December 15, 2005. The
                         Partnership does not expect the adoption of SFAS No.
                         154 to have an impact on its financial position or
                         results of operations.

<PAGE>

                                            COMMONWEALTH INCOME & GROWTH FUND II

                                                   NOTES TO FINANCIAL STATEMENTS

4.   NET INVESTMENT IN   The following lists the components of the net
     DIRECT FINANCING    investment in direct financing leases as of
     LEASES              December 31, 2005 and 2004:

<TABLE>
<CAPTION>
                         December 31,                                       2005         2004
                         ---------------------------------------------   ----------   ----------
                         <S>                                             <C>          <C>
                         Minimum lease payments receivable               $   32,808   $  103,927

                         Less: Unearned Revenue                              15,877       17,440
                                                                         ----------   ----------
                         Net investment in direct financing leases       $   16,931   $   86,487
                                                                         ----------   ----------
</TABLE>

                         The following is a schedule of future minimum rentals
                         on noncancellable direct financing leases at
                         December 31, 2005:

<TABLE>
<CAPTION>
                         Year ending December 31,                          Amount
                         ---------------------------------------------   ----------
                         <S>                                             <C>
                         2006                                            $   32,808
                                                                         ----------
                                                                         $   32,808
                                                                         ==========
</TABLE>

                         There are two lessees involved with the seven direct
                         financing leases.

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

                         The Partnership participates in leases that are shared
                         with other affiliated Partnerships. The Partnership's
                         share of the computer equipment in which they
                         participate at December 31, 2005 and 2004 was
                         approximately $840,000 and $1,306,000, respectively,
                         which is included in the Partnership's fixed assets on
                         their balance sheet. The total cost of the equipment
                         shared by the Partnership with other affiliated
                         partnerships at December 31, 2005 and 2004 was
                         approximately $1,536,000 and $2,249,000, respectively.
                         The Partnership's share of the outstanding debt
                         associated with this equipment at December 31, 2005 and
                         2004 was approximately $0 and $700, respectively, which
                         is included in the Partnership's liabilities

<PAGE>

                                            COMMONWEALTH INCOME & GROWTH FUND II

                                                   NOTES TO FINANCIAL STATEMENTS

                         on the balance sheet. The total outstanding debt at
                         December 31, 2005 and 2004 related to the equipment
                         shared by the Partnership was approximately $0 and
                         $1,100, respectively.

                         The following is a schedule of future minimum rentals
                         on noncancelable operating leases at December 31, 2005:

                         Year ending December 31,                       Amount
                         ------------------------------------------   ----------
                         2006                                         $    7,500
                                                                      ----------
                                                                      $    7,500
                                                                      ==========

     SIGNIFICANT         Lessees exceeding 10% of lease income for the years
     CUSTOMERS           ended:

                         Lessee                            2005    2004    2003
                         -------------------------------   ----    ----    ----
                         Lessee A                            --      41%     22%
                         Lessee B                            --      --      16%
                         Lessee C                            --      19%     12%
                         Lessee D                            36%     11%     --
                         Lessee F                            20%     --      --
                                                           ----    ----    ----
                         TOTAL % OF LEASE INCOME             56%     71%     50%
                                                           ----    ----    ----

                         Lessees exceeding 10% of accounts receivable at
                         December 31:

                         Lessee                                 2005       2004
                         --------------------------------   --------   --------

                         Lessee A                                 --         23%
                         Lessee D                                 --         11%
                         Lessee E                                 --         49%
                         Lessee F                                 88%        --
                                                            --------   --------
                         TOTAL % OF ACCOUNTS RECEIVABLE           88%        83%
                                                            --------   --------

<PAGE>

                                            COMMONWEALTH INCOME & GROWTH FUND II

                                                   NOTES TO FINANCIAL STATEMENTS

6.   RELATED PARTY       REIMBURSABLE EXPENSES
     TRANSACTIONS

                         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 2005, 2004 and 2003, the Partnership recorded
                         $105,000, $331,000, and $371,000, 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. No equipment acquisition fees
                         were paid to the General Partner in 2005. During 2004
                         and 2003, equipment acquisition fees of approximately
                         $1,000 and $1,000, 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. There were no
                         debt placement fees paid to the General Partner in
                         2005, 2004 and 2003.

<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 2005, 2004
                         and 2003, equipment management fees of approximately
                         $4,000, $36,000, and $76,000, 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 2005, 2004 and 2003.

<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 2005, 2004 and 2003.

7.   NOTES PAYABLE       Notes payable consisted of the following:

<TABLE>
<CAPTION>
                         December 31,                                       2005         2004
                         ---------------------------------------------   ----------   ----------
                         <S>                                             <C>          <C>
                         Installment notes payable to banks; interest
                         ranging from 6.25% to 6.75%, due in monthly
                         installments ranging from $241 to $1,875,
                         including interest, with final payments due
                         from February through April 2005.               $       --   $   82,902

                         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.                                          32,339       33,065
                                                                         ----------   ----------
                                                                         $   32,239   $  115,967
                                                                         ==========   ==========
</TABLE>

                         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, 2005 are as follows:

<PAGE>

                                            COMMONWEALTH INCOME & GROWTH FUND II

                                                   NOTES TO FINANCIAL STATEMENTS

                         Year ending December 31,                       Amount
                         ------------------------------------------   ----------
                         2006                                             32,239
                                                                      ----------
                                                                      $   32,239
                                                                      ==========

8.   SUPPLEMENTAL        Other noncash activities included in the determination
     CASH FLOW           of net loss are as follows:
     INFORMATION

<TABLE>
<CAPTION>
                                                             PERIOD ENDED     Year ended    Year ended
                                                               MARCH 31,     December 31,   December 31,
                                                                 2005            2004         2003
                                                             ------------    ------------   ------------
<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                  $      5,951    $    574,117   $    995,568
</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.

                         Noncash investing and financing activities include the
                         following:

<TABLE>
<CAPTION>
Year ended December 31,                                                  2005               2004               2003
-----------------------------------------------------------------   ---------------    ---------------    ---------------
<S>                                                                 <C>                <C>                <C>
Proceeds from sale received by CCC on behalf of the
 Partnership                                                        $            --    $            --    $       159,600
                                                                    ---------------    ---------------    ---------------
Net book value of equipment converted to direct
 financing leases                                                   $            --    $            --    $        15,299
                                                                    ---------------    ---------------    ---------------
</TABLE>

<PAGE>

                                            COMMONWEALTH INCOME & GROWTH FUND II

                                                   NOTES TO FINANCIAL STATEMENTS

9.   RECONCILIATION OF NET INCOME (LOSS) REPORTED FOR FINANCIAL REPORTING
     PURPOSES TO TAXABLE (LOSS) ON THE FEDERAL PARTNERSHIP RETURN

<TABLE>
<CAPTION>
Year ended December 31,                                                        2005               2004               2003
                                                                    ---------------    ---------------    ---------------
<S>                                                                 <C>                <C>                <C>
Net (loss) income for financial
    reporting purposes                                              $      (394,088)   $      (541,798)   $       129,629
  Adjustments
    Depreciation                                                            (22,507)           195,721           (107,236)
    Amortization                                                              1,997             34,496             52,324
    Unearned lease income                                                      (547)            (5,464)          (248,685)
    Bad debt (recovery) expense                                                  --                 --           (326,008)
    Loss on sale of computer equipment                                     (207,516)          (227,770)          (260,312)
    Other                                                                    10,085            (78,311)           (55,856)
                                                                    ---------------    ---------------    ---------------
Taxable loss on the Federal Partnership Return                      $      (612,576)   $      (623,126)   $      (816,144)
                                                                    ===============    ===============    ===============
</TABLE>

<PAGE>

                                            COMMONWEALTH INCOME & GROWTH FUND II

                                                   NOTES TO FINANCIAL STATEMENTS

10.  QUARTERLY RESULTS   Summarized quarterly financial data for the years ended
     OF OPERATION        December 31, 2005 and 2004 is as follows:
     (UNAUDITED)

<TABLE>
<CAPTION>
                                                               Quarter ended
                                            ------------------------------------------------------
                                             March 31       June 30*   September 30*  December 31*
                                            ----------    ----------   -------------  ------------
<S>                                         <C>           <C>          <C>            <C>
2005

REVENUES
  Lease and other                           $   28,792    $   20,985   $      11,948  $     11,978
  (Loss) gain on sale of computer
    equipment                                   (5,618)       31,772            (521)        6,389
                                            ----------    ----------   -------------  ------------
TOTAL REVENUES                                  23,174        52,757          11,427        18,367

TOTAL COSTS AND EXPENSES                       196,651       145,750         117,981        39,432
                                            ----------    ----------   -------------  ------------
NET INCOME (LOSS)                           $ (173,477)   $  (92,993)  $    (106,554) $    (21,065)
                                            ==========    ==========   =============  ============
INCOME (LOSS) PER LIMITED
 PARTNER UNIT                               $    (0.38)   $       --   $          --  $         --
                                            ----------    ----------   -------------  ------------
NET ASSETS IN LIQUIDATION PER
 LIMITED PARTNER UNIT                       $       --    $       --   $          --  $         --
                                            ----------    ----------   -------------  ------------
</TABLE>

                         Total costs and expenses includes an impairment
                         adjustment of approximately $9,000 that was recorded in
                         the fourth quarter of 2005.

                         * Liquidation basis effective April 1, 2005.

<PAGE>

<TABLE>
<CAPTION>
                                                              Quarter ended
                                            ------------------------------------------------------
                                             March 31      June 30    September 30    December 31
                                            ----------   ----------   -------------   ------------
<S>                                         <C>          <C>          <C>             <C>
2004

Revenues
 Lease and other                            $  232,911   $  217,347   $     171,611   $    120,442
 (Loss) gain on sale of computer equipment      (9,891)     (13,861)         (6,746)       (23,227)
                                            ----------   ----------   -------------   ------------
Total revenues                                 223,020      203,486         164,865         97,215

Total costs and expenses                       338,059      270,196         309,698        312,431
                                            ----------   ----------   -------------   ------------

Net income (loss)                           $ (115,039)  $  (66,710)  $    (144,833)  $   (215,216)
                                            ==========   ==========   =============   ============

Income (loss) per limited
  partner unit                              $    (0.25)  $    (0.15)  $       (0.31)  $      (0.47)
                                            ----------   ----------   -------------   ------------
</TABLE>

                         Total costs and expenses includes an impairment
                         adjustment of approximately $40,000 that was recorded
                         in the fourth quarter of 2004.