**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**





x **QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**




For
      the
      quarterly period ended June 30, 2006




**OR**




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




For
      the
      transition period from _______________ to ______________




Commission
      file number 333-84730







**LEASE
      EQUITY APPRECIATION FUND II, L.P.**


(Exact
      name of registrant as specified in its charter)





Delaware
              (State
                of Organization)
            20-1056194
              (I.R.S.
                Employer Identification
                No.)





110
      South
      Poplar Street, Suite 101,


Wilmington
      Delaware 19801


(Address
      of principal executive offices) (Zip Code)




(215)
      569-1844


(Registrant's
      telephone number, including area code)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. x Yes  ̈ No





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




Large
      accelerated filer  ̈  Accelerated
      filer  ̈  Non-accelerated
      filer x




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







**LEASE
      EQUITY APPRECIATION FUND II, L.P.**


**INDEX
      TO QUARTERLY REPORT**


**ON
      FORM 10-Q**





Page**PART
                I**
            **FINANCIAL
                INFORMATION**Item
                1.
            Financial
                StatementsConsolidated
                Balance Sheets - June 30, 2006 (unaudited) and December 31,
                2005
            3Consolidated
                Statement of Operations Three and Six Months Ended June 30, 2006
                andPeriod
                from April 14, 2005 (Commencement of Operations) to June 30, 2005(unaudited)
            4Consolidated
                Statement of Partners’ Capital and Comprehensive IncomeFor
                the Six Months Ended June 30, 2006
            5Consolidated
                Statement of Cash FlowsFor
                the Six Months Ended June 30, 2006 and the Period from April 14,
                2005(Commencement
                of Operations) to June 30, 2005 (unaudited)
            6Notes
                to Consolidated Financial Statements - June 30, 2006
                (unaudited)
            7-15ITEM
                2.
            Management’s
                Discussion and Analysis of Financial Conditionand
                Results of Operations
            16-20ITEM
                3.
            Quantitative
                and Qualitative Disclosures about Market
                Risk
            20ITEM
                4.
            Controls
                and Procedures
            20**PART
                II**
            **OTHER
                INFORMATION**ITEM
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            21ITEM
                6.
            Exhibits
            21**SIGNATURES**
            22








**PART
      I.**  **FINANCIAL
      INFORMATION**





**Item
      1.**  **Financial
      Statements**




**LEASE
      EQUITY APPRECIATION FUND II, L.P.**


**CONSOLIDATED
      BALANCE SHEETS**








**June
                30,**
            
            **December
                31,****2006**
            
            **2005**(unaudited)
            
            (audited)**ASSETS**Cash
            
            $
            13,413,695
            
            $
            1,033,939Restricted
                cash
            
            
            779,846
            
            
            379,120Accounts
                receivable
            
            
            180,511
            
            
            52,455Due
                from lockbox
            
            
            400,797
            
            
            669,524Investment
                in direct financing leases and notes, net
            
            
            94,674,756
            
            
            37,921,411Investment
                in operating leases (net of accumulated depreciation of $1,523,537and
                $244,903)
            
            
            10,919,320
            
            
            4,359,371Fair
                value of interest rate swap
            
            
            777,369
            
            
            158,569Other
                assets
            
            
            534,598
            
            
            308,277$
            121,680,892
            
            $
            44,882,666**LIABILITIES
                AND PARTNERS’ CAPITAL****Liabilities:**Debt
            
            $
            83,315,780
            
            $
            34,511,800Investments
                purchased, not settled
            
            
            8,023,750
            
            
            −Accounts
                payable and accrued expenses
            
            
            636,039
            
            
            214,530Due
                to related parties, net
            
            
            393,174
            
            
            69,946Security
                deposits
            
            
            755,913
            
            
            313,517Total
                liabilities
            
            
            93,124,656
            
            
            35,109,793**Partners’
                Capital**
            
            
            28,556,236
            
            
            9,772,873$
            121,680,892
            
            $
            44,882,666










The
      accompanying notes are an integral part of these financial
      statements.




3


**LEASE
      EQUITY APPRECIATION FUND II, L.P.**


**CONSOLIDATED
      STATEMENT OF
      OPERATIONS**


**(unaudited)**





**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,**
            
            **Period
                from**
              **April
                14, 2005 (commencement of operations) to**
              **June
                30,****2006**
            
            **2006**
            
            **2005****Income:**Interest
                on equipment financings
            
            $
            1,354,982
            
            $
            2,307,551
            
            $
            51,745Rental
                income
            
            
            833,887
            
            
            1,404,192
            
            
            −Gain
                (loss) on sale of equipment and lease dispositions, net
            
            
            6,534
            )
            
            36,767
            
            
            (121
            )Other
            
            
            110,840
            
            
            196,890
            
            
            2,5002,306,243
            
            
            3,945,400
            
            
            54,124**Expenses:**Interest
                expense
            
            
            975,953
            
            
            1,671,665
            
            
            1,283Depreciation
                on operating leases
            
            
            687,416
            
            
            1,172,060
            
            
            −Provision
                for credit losses
            
            
            265,929
            
            
            282,903
            
            
            5,200Management
                fee to related party
            
            
            179,349
            
            
            321,928
            
            
            14,354Administrative
                expense reimbursed to relatedparty
            
            
            159,774
            
            
            290,793
            
            
            102,261General
                and administrative expenses
            
            
            150,604
            
            
            231,206
            
            
            62,4012,419,025
            
            
            3,970,555
            
            
            185,499Net
                loss
            
            $
            (112,782
            )
            $
            (25,155
            )
            $
            (131,375
            )Weighted
                average number of limitedpartner
                units outstanding during the period
            
            
            265,980
            
            
            210,872
            
            
            41,522Net loss
                attributed to limited partners per unit
            
            $
            (0.41
            )
            $
            (0.12
            )
            $
            (3.13
            )







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




4


**LEASE
      EQUITY APPRECIATION FUND II, L.P.**


**CONSOLIDATED
      STATEMENT OF PARTNERS’ CAPITAL**


**AND
      COMPREHENSIVE INCOME**


**(unaudited)**





**General
                Partner**
            
            **Limited
                Partners**
            
            **Accumulated
                Other Comprehensive**
            
            **Partners’
                Capital**
            
            **Comprehensive
                Income****Amount**
            
            **Units**
            
            **Amount**
            
            **Income**
            
            **Total**
            
            **Total**Balance,
                December 31, 2005
            
            $
            (6,705
            )
            
            120,015
            
            $
            9,621,009
            
            $
            158,569
            
            $
            9,772,873Limited
                Partners’ contributions
            
            
            −
            
            
            217,974
            
            
            21,716,187
            
            
            −
            
            
            21,716,187Offering
                costs related to thesale
                of
              Limited
                Partnershipunits
            
            
            −
            
            
            −
            
            
            (2,824,620
            )
            
            −
            
            
            (2,824,620
            )Cash
                distributions paid
            
            
            (7,018
            )
            
            −
            
            
            (694,831
            )
            
            −
            
            
            (701,849
            )Net
                loss
            
            
            (252
            )
            
            −
            
            
            (24,903
            )
            
            −
            
            
            (25,155
            )
            $
            (25,155
            )Unrealized
                gain on hedgingderivative
            
            
            −
            
            
            −
            
            
            −
            
            
            618,800
            
            
            618,800
            
            
            618,800Balance,
                June 30, 2006
            
            $
            (13,975
            )
            
            337,989
            
            $
            27,792,842
            
            $
            777,369
            
            $
            28,556,236
            
            $
            593,645










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


5




**LEASE
      EQUITY APPRECIATION FUND II, L.P.**


**CONSOLIDATED
      STATEMENT OF CASH FLOWS**


**(unaudited)**





**Six
                Months Ended**
              **June
                30,**
            
            **Period
                from**
              **April
                14, 2005 (commencement of operations) to**
              **June
                30,****2006**
            
            **2005****Cash
                flows from operating activities:**Net loss
            
            $
            (25,155
            )
            $
            (131,375
            )Adjustments
                to reconcile net income to net cash provided by operatingactivities:Depreciation
            
            
            1,172,060
            
            
            −Provision
                for credit losses
            
            
            282,903
            
            
            5,200Amortization
                of deferred financing costs
            
            
            21,955
            
            
            −Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (128,056
            )
            
            −Due
                from lockbox
            
            
            268,727
            
            
            (39,369
            )Other
                assets
            
            
            6,836
            
            
            −Accounts
                payable and accrued expenses
            
            
            421,509
            
            
            161,762Due
                to related parties, net
            
            
            323,228
            
            
            128,861Net
                cash provided by operating activities
            
            
            2,344,007
            
            
            125,079**Cash
                flows from investing activities:**Investment
                in direct financing leases and notes
            
            
            (55,914,269
            )
            
            (6,054,870
            )Investment
                in equipment under operating leases
            
            
            (7,732,009
            )
            
            −Proceeds
                from direct financing leases, net of earned income
            
            
            6,901,771
            
            
            130,237Security
                deposits, net
            
            
            442,396
            
            
            20,811Net
                cash used in investing activities
            
            
            (56,302,111
            )
            
            (5,903,822
            )**Cash
                flows from financing activities:**Increase
                in restricted cash
            
            
            (400,726
            )
            
            (100,000
            )Increase
                in deferred financing costs
            
            
            (255,112
            )
            
            (387,567
            )Proceeds
                from debt
            
            
            57,315,316
            
            
            2,251,490Repayment
                of debt
            
            
            (8,511,336
            )
            
            −Increase
                in subscription deposits
            
            
            −
            
            
            595,000Limited
                Partners’ capital contributions
            
            
            21,716,187
            
            
            4,825,501Payment
                of offering costs incurred for the sale of partnership
                units
            
            
            (2,824,620
            )
            
            (649,187
            )Partners’****distributions
            
            
            (701,849
            )
            
            (39,866
            )Redemption
                of initial limited partners
            
            
            −
            
            
            (1
            )Net
                cash provided by financing activities
            
            
            66,337,860
            
            
            6,495,370Increase
                in cash
            
            
            12,379,756
            
            
            716,627Cash,
                beginning of period
            
            
            1,033,939
            
            
            1,001Cash,
                end of period
            
            $
            13,413,695
            
            $
            717,628





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




6


**LEASE
      EQUITY APPRECIATION FUND II, L.P.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2006**


( unaudited )




**NOTE
      1** **-** **ORGANIZATION AND NATURE OF BUSINESS**





Lease
      Equity Appreciation Fund II, L.P. (the “Fund”), a Delaware limited partnership,
      was formed on March 30, 2004 by LEAF Financial Corporation (the “General
      Partner”). The General Partner is a subsidiary of Resource Leasing, Inc., which
      is a wholly owned subsidiary of Resource America, Inc. (“RAI”). RAI is a
      publicly-traded company (Nasdaq: REXI) operating in the financial fund
      management, real estate and equipment finance sectors.





The
      General Partner and the initial limited partner capitalized the Fund. The
      General Partner contributed $1,000 to the Fund for a 1% partnership interest
      and
      the initial limited partner contributed $1 to the Fund for a 99% limited
      partnership interest. Upon the Fund breaking escrow on April 14, 2005, the
      initial limited partner withdrew as a limited partner and its capital
      contribution was returned (termination date). The Fund is in the offering stage
      and will continue to offer and sell its limited partner units until December
      21,
      2006, or until the Fund receives its maximum subscription proceeds of $60.0
      million (600,000 units) whichever occurs first. The Fund is managed by the
      General Partner. As of June 30, 2006, the Fund sold subscriptions for 337,989
      limited partner units ($33,695,632).





The
      General Partner owns a 1% general partnership interest, and the limited partners
      own a 99% limited partnership interest. Cash distributions, if available, are
      made monthly. The cash distributions are allocated 99% to the limited partners
      and 1% to the General Partner. Net income and net losses are allocated 99%
      to
      the limited partners and 1% to the General Partner. As of June 30, 2006, in
      addition to its 1% General Partnership interest, the General Partner also owns
      a
      3.2% limited partnership interest in the Fund. The Fund shall terminate on
      December 31, 2029, unless sooner dissolved or terminated as provided in the
      Limited Partnership Agreement.





The
      Fund
      seeks to acquire a diversified portfolio of equipment to finance to end users
      throughout the United States. The Fund also seeks to acquire existing portfolios
      of equipment subject to existing financings from other equipment finance
      companies, primarily its General Partner. The primary objective of the Fund
      is
      to generate regular cash distributions to its partners from its equipment
      finance portfolio over the life of the Fund.




The
      consolidated financial statements and notes thereto as of June 30, 2006 and
      for
      the three and six months ended June 30, 2006 are unaudited. Certain information
      and footnote disclosures normally included in financial statements prepared
      in
      accordance with accounting principles generally accepted in the United States
      of
      America have been condensed or omitted pursuant to the rules and regulations
      of
      the Securities and Exchange Commission. However, in the opinion of management,
      these interim financial statements include all the necessary adjustments to
      fairly present the results of the interim period presented. The unaudited
      interim consolidated financial statements should be read in conjunction with
      the
      audited consolidated financial statements included in the Fund’s Annual Report
      on Form 10-K for the year ended December 31, 2005. The results of operations
      for
      the three and six months ended June 30, 2006 may not necessarily be indicative
      of the results of operations for the full year ending December 31,
      2006.





**NOTE
      2 − SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**




**Basis
      of Presentation**





The
      consolidated financial statements include the accounts of the Fund and its
      wholly-owned subsidiary, LEAF Fund II LLC. All intercompany accounts and
      transactions have been eliminated in consolidation.





The
      accompanying financial statements and related notes present the Fund’s
      consolidated financial position as of June 30, 2006 and December 31, 2005 and
      the results of its consolidated operations, cash flows, and changes in partner’s
      capital for the period from commencement of operations on April 14, 2005
      through June 30, 2005 (hereafter referred to as the period ended June 30, 2005)
      and for the three and six months ended June 30, 2006.




7


**LEASE
      EQUITY APPRECIATION FUND II, L.P.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)**


**JUNE
      30, 2006**


( unaudited )





**NOTE
      2 − SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES −
(Continued)**





**Classification**





Management
      believes that, consistent with the financial statement presentation of other
      equipment leasing companies, it is more appropriate to present the Fund’s
      consolidated balance sheets on a non-classified basis, which does not segregate
      assets and liabilities into current and non-current categories.





**Use
      of Estimates**





Preparation
      of financial statements in conformity with accounting principles generally
      accepted in the United States of America (“U.S. GAAP”) requires management to
      make estimates and assumptions that affect the reported amounts of assets and
      liabilities and the disclosure of contingent assets and liabilities as of the
      date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. Significant estimates include the
      estimated unguaranteed residual values of leased equipment, the allowance for
      possible losses and impairment of long-lived assets. Actual results could differ
      from those estimates.





Unguaranteed
      residual value represents the estimated amount to be received at lease
      termination from lease extensions or ultimate disposition of the leased
      equipment. T he
      estimates of residual values are based upon
      the
      General Partner’s history with regard to the realization of residuals, available
      industry data and the General Partner’s senior management’s experience with
      respect to comparable equipment. The estimated residual values are recorded
      as a
      component of investments in leases on a net present value basis. Residual values
      are reviewed periodically to determine if the current estimate of the
      equipment’s fair market value appears to be below its recorded estimate. If
      required, residual values are adjusted downward to reflect adjusted estimates
      of
      fair market values. In accordance with U.S. GAAP, upward adjustments to residual
      values are not permitted.





The
      Fund’s allowance for possible losses is primarily based on factors which include
      the General Partner’s historical loss experience or equipment finance portfolios
      it manages, an analysis of contractual delinquencies, economic conditions and
      trends, industry statistics and equipment finance portfolio characteristics.
      The
      Fund’s policy is to charge off to the allowance those financings which are in
      default and for which management has determined the probability of collection
      to
      be remote.





The
      Fund
      reviews its long-lived assets for impairment whenever events or circumstances
      indicate that the carrying amount of such assets may not be recoverable. If
      it
      is determined that estimated undiscounted future cash flows derived from
      long-lived assets will not be sufficient to recover their carrying amounts,
      an
      impairment charge will be recorded if the carrying amount of the assets exceed
      their estimated fair values.





**Concentration
      of Credit Risk**





Financial
      instruments, which potentially subject the Fund to concentrations of credit
      risk, consist of excess cash. The Fund deposits its excess cash in high-quality
      financial institutions. As of June 30, 2006, the Fund had deposits at two banks
      totaling $13,489,462 of which $13,289,462 was over the insurance limit of the
      Federal Deposit Insurance Corporation. No losses have been experienced on such
      deposits.


8




**LEASE
      EQUITY APPRECIATION FUND II, L.P.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)**


**JUNE
      30, 2006**


( unaudited )





**NOTE
      2 − SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES −
(Continued)**





**Revenue
      Recognition**





The
      Fund’s investment in financing assets consists of direct financing leases, notes
      and operating leases. Leases are recorded in accordance with Statement of
      Financial Accounting Standards No. 13, “Accounting for Leases,” and its various
      amendments and interpretations.





*Direct
      Financing Leases.* Certain
      of the Fund’s lease transactions are accounted for as direct financing leases
      (as distinguished from operating leases). Such leases transfer substantially
      all
      benefits and risks of equipment ownership to the customer. The Fund’s investment
      in direct financing leases and notes consists of the sum of the total future
      minimum contracted payments receivable and the estimated unguaranteed residual
      value of leased equipment, less unearned finance income. Unearned finance
      income, which is recognized as revenue over the term of the financing by the
      effective interest method, represents the excess of the total future minimum
      lease payments plus the estimated unguaranteed residual value expected to be
      realized at the end of the lease term over the cost of the related equipment.





*Operating
      Leases.* Leases
      not meeting any of the criteria to be classified as direct financing leases
      are
      deemed to be operating leases. Under the accounting for operating leases, the
      cost of the leased equipment, including acquisition fees associated with lease
      placements, is recorded as an asset and depreciated on a straight-line basis
      over the equipment’s estimated useful life, generally up to seven years. Rental
      income consists primarily of monthly periodic rental payments due under the
      terms of the leases. The Fund recognizes rental income on a straight line basis.
      Generally, during the lease terms of existing operating leases, the Fund will
      not recover all of the cost and related expenses of its rental equipment and,
      therefore, it is prepared to remarket the equipment in future years. The Fund’s
      policy is to review, on a quarterly basis, the expected economic life of its
      rental equipment in order to determine the recoverability of its undepreciated
      cost. In accordance with U.S. GAAP, the Fund writes down its rental equipment
      to
      its estimated net realizable value when it is probable that its carrying amount
      exceeds such value and the excess can be reasonably estimated; gains are only
      recognized upon actual sale of the rental equipment. There were no write-downs
      of equipment during the six months ended June 30, 2006.





*Notes
      Receivable.* The
      Fund’s investment in notes receivable consists of the sum of the total future
      minimum loan payments receivable less unearned finance income. Unearned finance
      income, which is recognized as revenue over the term of the financing by the
      effective interest method, represents the excess of the total future minimum
      contracted payments term over the cost of the related equipment.





The
      Fund
      generally discontinues the recognition of revenue for leases and notes for
      which
      payments are more than 90 days past due.





Fees
      from
      delinquent payments are recognized when received and are included in other
      income.





**Income
      Taxes**





Federal
      and state income tax laws provide that the income or losses of the Fund are
      reportable by the Partners on their individual income tax returns. Accordingly,
      no provision for such taxes has been made in the accompanying financial
      statements.




9




**LEASE
      EQUITY APPRECIATION FUND II, L.P.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)**


**JUNE
      30, 2006**


( unaudited )





**NOTE
      2 − SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES −
(Continued)**





**Supplemental
      Disclosure of Cash Flow Information**





Information
      for the six months and period ended June 30, 2006 and 2005, respectively, is
      as
      follows:





**2006**
            
            **2005**Cash
              paid for:Interest
            
            $
            1,603,191
            
            $
            −**Non-cash
                activities:**Purchase
                of direct financing leases from the General Partner
            
            $
            12,337,924
            
            $
            −Note
                payable to General Partner
            
            $
            12,337,924
            
            $
            −Investments
                purchased, not settled
            
            $
            8,023,750
            
            $
            −





**Transfers
      of Financial Assets**





In
      connection with establishing its revolving line of credit with WestLB AG, the
      Fund formed a bankruptcy remote special purpose entity through which the
      financing is arranged. Under SFAS No. 140, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities,* the
      Fund’s transfer of assets to the special purpose entity do not qualify for sales
      accounting treatment due to certain call provisions that the Fund maintains.
      Accordingly, assets and related debt of the special purpose entity are included
      in the Fund’s consolidated balance sheets. The Fund’s leases, notes receivable
      and restricted cash are assigned as collateral for these borrowings and there
      is
      no further recourse to the general credit of the Fund. Collateral in excess
      of
      these borrowings represents the Fund’s maximum loss exposure.





**Fair
      Value of Financial Instruments**





For
      cash,
      receivables and payables, the carrying amounts approximate fair values because
      of the short maturity of these instruments. The carrying value of debt
      approximates fair market value since interest rates approximate current market
      rates. The interest rate swap discussed in Note 8 is recorded at fair value
      in
      the accompanying consolidated balance sheets.





**NOTE
      3 - RESTRICTED CASH**





Restricted
      Cash as of June 30, 2006 and December 31, 2005 includes cash being held in
      reserve by the Fund’s lenders.





**NOTE
      4 − DUE FROM LOCKBOX**





Customer
      payments are deposited into a lockbox shared with the Fund's General
      Partner and other entities serviced by the General Partner. The lockbox is
      in
      the name of U.S. Bank NA as trustee under an inter-creditor agreement amongst
      the General Partner, the other entities and their respective lenders. Amounts
      recorded as due from lockbox on the accompanying Balance Sheets, represent
      customer payments received by the lockbox, applied to the respective customer’s
      accounts, but not transferred to the Fund’s bank account.




10


**LEASE
      EQUITY APPRECIATION FUND II, L.P.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)**


**JUNE
      30, 2006**


( unaudited )





**NOTE
      5** **-** **INVESTMENT IN LEASES AND NOTES**





The
      Fund’s direct financing leases are generally for initial lease terms ranging
      from 24 to 84 months. Unguaranteed residuals for direct financing leases
      represent the estimated amounts recoverable at lease termination from lease
      extensions or disposition of the equipment. The interest rates on notes
      receivable generally range from 8% to 11%. As of June 30, 2006 and December
      31,
      2005, the average initial term of our financings was 45 months and 47 months,
      respectively. As of June 30, 2006, 12% and 13% of our equipment was located
      in
      California and Pennsylvania, respectively. As of December 31, 2005, 14%
      of the Fund's equipment was located in California. The following table
      sets forth investment in direct financing leases and notes:





**June
                30,**
            
            **December
                31,****2006**
            
            **2005**Direct
                financing leases
            
            $
            78,684,108
            
            $
            34,567,490Notes
                receivable
            
            
            16,190,648
            
            
            3,321,27794,874,756
            
            
            37,888,767Allowance
                for possible losses
            
            
            (200,000
            )
            
            (130,000
            )$
            94,764,756
            
            $
            37,758,767





The
      components of the net investment in direct financing leases for the periods
      indicated are as follows:





**June
                30,**
            
            **December
                31,****2006**
            
            **2005**Total
                future minimum lease payments
            
            $
            85,987,753
            
            $
            37,102,220Unearned
                rental income
            
            
            (11,793,782
            )
            
            (4,360,607
            )Residuals,
                net of unearned residual income
            
            
            4,490,137
            
            
            1,825,877$
            78,684,108
            
            $
            34,567,490





The
      following is a summary of the Fund’s allowance for possible losses for the
      period indicated:





**Six
                Months Ended**
              **June
                30, 2006**
            
            **Period
                Ended**
              **June
                30, 2005**Allowance
                for possible losses, beginning of period
            
            $
            130,000
            
            $
            −Provision
                for credit losses
            
            
            282,903
            
            
            5,200Net
                write offs
            
            
            (212,903
            )
            
            −Allowance
                for possible losses, end of period
            
            $
            200,000
            
            $
            5,200





The
      future minimum lease payments and related rental payments scheduled to be
      received on non-cancelable direct financing leases, notes and operating leases
      at June 30, 2006 are as follows:





**Years
                Ending**
              **June
                30, 2006**
            
            **Direct**
              **Financing
                Leases**
            
            **Notes**
            
            **Operating
                Leases**
            
            **Total**2007
            
            $
            29,020,585
            
            $
            9,374,773
            
            $
            4,078,280
            
            $
            42,473,6382008
            
            
            23,930,409
            
            
            1,444,029
            
            
            3,425,132
            
            
            28,799,5702009
            
            
            16,583,679
            
            
            1,392,040
            
            
            1,708,365
            
            
            19,684,0842010
            
            
            10,240,644
            
            
            1,410,120
            
            
            983,589
            
            
            12,634,3532011
            
            
            3,733,519
            
            
            1,215,760
            
            
            212,191
            
            
            5,161,470Thereafter
            
            
            2,478,917
            
            
            1,353,926
            
            
            19,943
            
            
            3,852,786$
            85,987,753
            
            $
            16,190,648
            
            $
            10,427,500
            
            $
            112,605,901





11


**LEASE
      EQUITY APPRECIATION FUND II, L.P.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)**


**JUNE
      30, 2006**


( unaudited )





**NOTE
      6 − OTHER ASSETS**





As
      of
      June 30, 2006 and December 31, 2005, other assets include $535,886 and $302,730,
      respectively, of unamortized deferred financing costs which are being amortized
      over the terms of the related debt. Accumulated amortization as of June 30,
      2006
      and December 31, 2005 is $45,242 and $23,287, respectively.





**NOTE
      7** **-** **DEBT**





The
      table
      below summarizes the Fund’s debt as of June 30, 2006 and December 31,
      2005:





**June
                30, 2006**
            
            **December
                31, 2005**WestLB
                AG, New York Branch revolving line of credit, with an aggregate borrowing
                limit of $150 million collateralized by specific leases and notes
                receivables and related equipment, with a 1% credit reserve of the
                outstanding line of credit. Interest on this facility is calculated
                at
                LIBOR plus .95% per annum. To mitigate fluctuations in interest rates
                the
                Fund has entered into interest rate swap agreements. The interest
                rate
                swap agreements terminate on various dates ranging from December
                2010 to
                July 2013. The interest rate swap agreements fix the interest rate
                on this
                facility at 5.89% on a weighted average basis. Interest and principal
                are
                due monthly. The line of credit is renewable for one year periods
                in 2007
                and 2008. The terms of the Funds’ credit facility with WestLB includes
                financial covenants related to the Fund's net worth and leverage
                used. As
                of June 30, 2006, the Fund is in compliance with all such
                covenants.
            
            $
            70,977,856
            
            $
            34,511,800Note
                Payable to General Partner, dated June 30, 2006 collateralizedby
                specific lease receivable. The note has a maturity date of July 31,
                2006
                and accrues interest at 8% per annum. The note was paid in July
                2006.
            
            
            12,337,924
            
            
            −Total
                outstanding debt
            
            $
            83,315,780
            
            $
            34,511,800





The
      debt
      maturity for each of the succeeding twelve month periods ending June 30, and
      thereafter, is as follows:





2007
            
            $
            33,299,9292008
            
            
            19,248,2452009
            
            
            13,810,7572010
            
            
            9,274,7252011
            
            
            4,196,116Thereafter
            
            
            3,486,008$
            83,315,780





**NOTE
      8** **-** **INVESTMENTS PURCHASE, NOT SETTLED**





On
      June
      30, 2006, the Fund invested in $8,023,750 of notes receiavable for which payment
      was not yet due.  Payment of this liability is paid as the investments
      settle in July and August 2006.




12


**LEASE
      EQUITY APPRECIATION FUND II, L.P.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)**


**JUNE
      30, 2006**


( unaudited )





**NOTE
      9** **-** **DERIVATIVE INSTRUMENTS**





The
      majority of the Fund’s assets and liabilities are financial contracts with fixed
      and variable rates. Any mismatch between the repricing and maturity
      characteristics of the Fund’s assets and liabilities exposes it to interest rate
      risk when interest rates fluctuate. For example, the Fund’s assets are
      structured on a fixed-rate basis, but since funds borrowed through bank debt
      are
      obtained on a floating-rate basis, the Fund is exposed to a certain degree
      of
      risk if interest rates rise, causing an increase in the Fund’s borrowing
      costs. When the Fund originates financings, it bases its pricing in part on
      the spread it expects to achieve between the interest rate it charges its
      customers and the effective interest cost it will pay when it funds those
      leases loans. Increases in interest rates that increase the Fund’s
      permanent funding costs between the time the assets are originated and the
      time
      they are funded could narrow, eliminate or even reverse this spread.





To
      manage
      interest rate risk, the Fund employs a hedging strategy using derivative
      financial instruments such as interest rate swaps which are designated as cash
      flow hedges. The Fund does not use derivative financial instruments for trading
      or speculative purposes. The Fund manages the credit risk of possible
      counterparty default in these derivative transactions by dealing exclusively
      with counterparties with investment grade ratings.





Before
      entering into a derivative transaction for hedging purposes, the Fund determines
      that a high degree of initial effectiveness exists between the change in the
      value of the hedged item and the change in the value of the derivative from
      a
      movement in interest rates. High effectiveness means that the change in the
      value of the derivative will be effectively offset by the change in the value
      of
      the hedged asset or liability. The Fund measures the effectiveness of each
      hedge
      throughout the hedge period. Any hedge ineffectiveness, as defined by US GAAP
      is
      recognized in the income statement.





There
      can
      be no assurance that the Fund’s hedging strategies or techniques will be
      effective, that profitability will not be adversely affected during any period
      of change in interest rates or that the costs of hedging will not exceed the
      benefits.





At
      June
      30, 2006 and December 31, 2005, the notional amounts of the interest rate swaps
      were $70,043,055 and $34,172,300, respectively. For the six months ended June
      30, 2006, the Fund had an unrealized gain of $618,800 on these interest rate
      swaps which is included in accumulated other comprehensive income. The Fund
      recognized no gain or loss during the six months ended June 30, 2006 for hedge
      ineffectiveness. Assuming market rates remain constant with the rates of June
      30, 2006, $319,058 in accumulated other comprehensive income is expected to
      be
      recognized in earnings over the next 12 months.





**NOTE
      10 − TRANSACTIONS WITH AFFILIATES**





The
      General Partner and Anthem Securities, Inc. (“Anthem Securities”), an indirect
      subsidiary of Atlas America Inc., RAI’s former energy subsidary, receive an
      organization and offering allowance of 3.5% of the offering proceeds raised.
      This amount includes reimbursement to Anthem Securities to use for the selling
      dealers’ bona fide accountable due diligence expenses of up to 0.5% of the
      proceeds of each unit sold by them. These charges are recorded by the Fund
      as
      offering costs related to the sale of Partnership units on the Consolidated
      Statements of Partners’ Capital and Comprehensive Income.





Anthem
      Securities receive an underwriting fee of up to 3% of the offering proceeds
      for
      obtaining and managing the group of selling broker-dealers who will sell the
      units in the offering. Anthem Securities will also receive sales commissions
      of
      7% of the proceeds of each unit sold by it. Anthem Securities did not sell
      any
      units through June 30, 2006.





The
      General Partner receives a fee for assisting the Fund in acquiring equipment
      for
      lease and portfolios of equipment subject to existing equipment leases equal
      to
      2% of the purchase price the Fund pays for the equipment or portfolios of
      equipment subject to existing equipment financing.


13





**LEASE
      EQUITY APPRECIATION FUND II, L.P.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)**


**JUNE
      30, 2006**


( unaudited )





**NOTE
      10 − TRANSACTIONS WITH AFFILIATES − (Continued)**




The
      General Partner is entitled to receive a subordinated annual asset management
      fee equal to 4% of gross rental payments for operating leases, as defined in
      the
      partnership agreement, or 2% of gross rental payments for full payout leases,
      or
      a competetive fee, whichever is less. An operating lease is one in which the
      aggregate noncancellable rental payments during the initial term of the lease,
      on a net present value basis, are not sufficient to recover the purchase price
      of the equipment. A full payout lease is one in which the gross rental payments,
      on a net present value basis, are at least sufficient to recover the purchase
      price of the equipment. During the Fund’s five-year investment period, the
      management fee will be subordinated to the payment to the Fund’s limited
      partners of a cumulative annual distribution of 8% of their capital
      contributions, as adjusted by distributions deemed to be a return of
      capital.





The
      General Partner is entitled to receive a subordinated commission equal to
      one-half of a competitive commission, up to a maximum of 3% of the contract
      sales price, for arranging the sale of the Fund’s equipment after the expiration
      of a lease. This commission is subordinated to the payment to the limited
      partners of a cumulative 8% annual return on their capital contributions, as
      adjusted by distributions deemed to be returns of capital. No sales were
      arranged and, therefore, no commissions were paid during the six months ended
      June 30, 2006.





The
      General Partner and its parent company are reimbursed by the Fund for certain
      costs of services and materials used by or for the Fund except those items
      covered by the above-mentioned fees.





The
      General Partner is entitled to receive a commission equal to the lesser of
      a
      competitive rate or 2% of gross rental payments derived from any re-lease of
      equipment, payable as the Fund receives rental payments from re-lease. The
      Fund
      will not, however, pay a re-lease commission if the re-lease is with the
      original lessee or its affiliates. No equipment was re-leased and, therefore,
      no
      re-lease commissions were paid during the six months ended June 30,
      2006.





The
      following is a summary of fees and costs of services and materials charged
      by
      the General Partner or its affiliates during the periods indicated:





**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Acquisition
                fees
            
            $
            626,825
            
            $
            121,097
            
            $
            1,353,161
            
            $
            121,097Asset
                management fees
            
            $
            179,349
            
            $
            14,354
            
            $
            321,928
            
            $
            14,354Organization
                and offering expense allowance
            
            $
            464,129
            
            $
            168,893
            
            $
            760,067
            
            $
            168,893Reimbursed
                administrative expenses
            
            $
            159,774
            
            $
            102,261
            
            $
            290,793
            
            $
            102,261Underwriting
                fees
            
            $
            1,241,194
            
            $
            480,295
            
            $
            2,064,553
            
            $
            480,295





Due
      to
      related parties, net as of June 30, 2006 and December 31, 2005 represents net
      monies due to the General Partner for management fees, reimbursed expenses
      and
      other advances.





14





**LEASE
      EQUITY APPRECIATION FUND II, L.P.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)**


**JUNE
      30, 2006**


( unaudited )





**NOTE
      11** **-** **ALLOCATION OF PARTNERSHIP INCOME, LOSS AND CASH
      DISTRIBUTIONS**





Cash
      distributions, if any, are made monthly as follows: 99% to the Limited Partners
      and 1% to the General Partner until the Limited Partners have received an amount
      equal to their unpaid cumulative return (8% of their adjusted capital
      contribution) and thereafter, to investment and reinvestment in investments
      or,
      if the General Partner elects not to invest or reinvest such distributable
      cash,
      99% to the Limited Partners and 1% to the General Partner.





Net
      income for any fiscal period during the reinvestment period (the period
      commencing April 14, 2005 and ending December 12, 2011) is allocated 99% to
      the
      Limited Partners and 1% to the General Partner. Income during the liquidation
      period, as defined in the Partnership Agreement, will be allocated first to
      the
      Partners in proportion to and to the extent of the deficit balances, if any,
      in
      their respective capital accounts. Thereafter, net income will be allocated
      99%
      to the Limited Partners and 1% to the General Partner.





**NOTE
      12 − COMPREHENSIVE INCOME**





Comprehensive
      income includes net income and all other changes in the equity of a business
      during a period from non-owner sources. These changes, other than net income,
      are referred to as “other comprehensive income” and for the Fund, only include
      changes in the fair value of unrealized hedging gains.





**NOTE
      13 − NET INCOME PER LIMITED PARTNERSHIP UNIT**





Net
      income per limited partnership unit is computed by dividing net income allocated
      to the Fund’s Limited Partners by the weighted average number of limited
      partnership units outstanding during the period. The weighted average number
      of
      limited partnership units outstanding during the period is computed based on
      the
      number of limited partnership units issued during the period weighted for the
      days outstanding during the period. Basic income per limited partnership unit
      equals dilutive net income per limited partnership unit because there are no
      potential dilutive units.


15





**ITEM
      2.****MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION****AND
      RESULTS OF OPERATIONS (unaudited)**





**When
      used in this Form 10-Q, the words “believes” “anticipates,” “expects” and
      similar expressions are intended to identify forward-looking statements. Such
      statements are subject to certain risks and uncertainties more particularly
      described in Item 1A, under the caption “Risks Inherent in Our Business,” in our
      annual report on Form 10-K for fiscal 2005. These risks and uncertainties could
      cause actual results to differ materially. Readers are cautioned not to place
      undue reliance on these forward-looking statements, which speak only as of
      the
      date hereof. We undertake no obligation to publicly release the results of
      any
      revisions to forward-looking statements which we may make to reflect events
      or
      circumstances after the date of this Form 10-Q or to reflect the occurrence
      of
      unanticipated events.**





**OVERVIEW**




We
      are
      Lease Equity Appreciation Fund II, L.P. (the "Fund"), a Delaware limited
      partnership formed on March 30, 2004. Our general partner is LEAF Financial
      Corporation (“the General Partner” or “LEAF”). LEAF is a subsidiary of Resource
      Leasing, Inc., a wholly-owned subsidiary of Resource America, Inc., which is
      a
      publicly-traded company (Nasdaq: REXI) operating in the financial fund
      management, real estate and equipment finance sectors. We received our minimum
      subscription proceeds of $2.0 million (20,000 units), excluding Iowa and
      Pennsylvania residents and units sold to the original limited partner and our
      general partner or its officers, directors, employees or other affiliates,
      required to begin operations and we broke escrow on April 14, 2005. We will
      continue to offer and sell our limited partner interests (our “units”) until
      December 21, 2006, or until we receive our maximum subscription proceeds of
      $60.0 million (600,000 units) whichever occurs first. As of June 30, 2006,
      we
      had sold subscriptions for 337,989 limited partner units
      ($33,695,632).





We
      acquire a diversified portfolio of new, used or reconditioned equipment that
      we
      lease to third parties. We also acquire portfolios of equipment subject to
      existing leases from other equipment lessors. In addition, as an accommodation
      to our end user customers, up to 20% of our funds available for investment
      at
      any given time may be used to make secured loans to the end users to finance
      their purchase of equipment. We attempt to structure our secured loans so that,
      in an economic sense, there, is no difference to us between a secured loan
      and a
      full payout equipment lease. The equipment we finance includes computers,
      copiers, furniture, heating, ventilation and air conditioning equipment, medical
      equipment and telecommunications equipment and industrial equipment. We focus
      on
      the small to mid-size business market, which generally includes businesses
      with:




·
            500
                or fewer employees;




·
            $1.0
                billion or less in total assets; or




·
            $100.0
                million or less in total annual
                sales.





We
      expect
      that the per unit equipment cost for leases we originate generally will be
      between $20,000 and $2.0 million. Our principal objective is to generate regular
      cash distributions to our limited partners.





Our
      leases consist of direct financing and operating leases as defined by generally
      accepted accounting principles in the United States of America. Under the direct
      financing method of accounting interest income (the excess of the aggregate
      future rentals and estimated unguaranteed residuals upon expiration of the
      lease
      over the related equipment cost) is recognized over the life of the lease using
      the interest method. Under the operating method the cost of the leased
      equipment, including acquisition fees associated with lease placements, is
      recorded as an asset and depreciated on a straight-line basis over its estimated
      useful life. Rental income on operating leases consists primarily of monthly
      periodic rentals due under the terms of the leases. Generally, during the lease
      terms of existing operating leases, we will not recover all of the cost and
      related expenses of rental equipment and, therefore, we are prepared to remarket
      the equipment in future years. When a direct financing lease or note is
      90 days or more delinquent, the lease or note is classified as being on
      non-accrual and we do not recognize interest income on that lease or note until
      the lease or note become less than 90 days delinquent.





16


Our
      offering began on December 22, 2004 and we broke escrow on April 14, 2005
      (commencement of operations). As of June 30, 2006, our portfolio contained
      2,423
      equipment leases with 2,114 individual end users located in 50 states. No
      individual end user or single piece of equipment accounted for more than 3%
      of
      our portfolio based on original cost of the equipment. As of June 30, 2006,
      we
      had a net investment of $10,919,320 in equipment under operating leases and
      a
      net investment of $94,874,756 in direct financing leases and notes for a total
      investment in equipment financing assets of $105,794,076. Our average original
      equipment cost per equipment financing transaction was $48,962 and $49,820,
      as
      of June 30, 2006 and December 31, 2005, respectively. As of June 30, 2006 and
      December 31, 2005, the average initial term of our financings was 45 months
      and
      47 months, respectively. As of June 30, 2006, 12% and 13% of our equipment
      was
      located in California and Pennsylvania, respectively. As of December 31, 2005,
      14% of our equipment was located in California.





We
      utilize debt in addition to our equity to fund the acquisitions of lease
      portfolios. As of June 30, 2006, our outstanding debt was
      $83,315,780.





**Our
      Lease Portfolio**





The
      following schedules detail the type, net investment (before allocating the
      allowance for possible losses) and percentage of the various types of equipment
      leased by us under operating leases, direct financing leases and notes as of
      June 30, 2006 and December 31, 2005 (dollars in thousands):





**Direct
      Financing Leases and Notes**





**June
                30 2006**
            
            
            
            
            **December
                31, 2005****Type
                of Equipment**
            
            **Net
                Investment**
            
            **Percentage**
            
            
            **Type
              of Equipment**
            
            **Net
                Investment**
            
            **Percentage**Computers
            
            $
            33,128
            
            
            34.9
            %
            
            Computers
            
            $
            12,975
            
            
            34.2
            %Medical
                Equipment
            
            
            21,223
            
            
            22.4
            
            
            Medical
                Equipment
            
            
            6,794
            
            
            17.9Industrial
                Equipment
            
            
            12,162
            
            
            12.8
            
            
            Industrial
                Equipment
            
            
            6,087
            
            
            16.1Office
                Equipment
            
            
            4,578
            
            
            4.8
            
            
            Office
                Equipment
            
            
            2,789
            
            
            7.4Software
            
            
            3,777
            
            
            4.0
            
            
            Software
            
            
            2,536
            
            
            6.7Restaurant
                Equipment
            
            
            3,216
            
            
            3.4
            
            
            Building
                systems
            
            
            1,877
            
            
            5.0Garment
                Care
            
            
            2,390
            
            
            2.5
            
            
            Restaurant
                Equipment
            
            
            1,469
            
            
            3.9Building
                systems
            
            
            2,150
            
            
            2.3
            
            
            Garment
                Care
            
            
            1,570
            
            
            4.1Communications
            
            
            1,830
            
            
            1.9
            
            
            Communications
            
            
            980
            
            
            2.6Agriculture
            
            
            10,421
            
            
            11.0
            
            
            Agriculture
            
            
            812
            
            
            2.1$
            94,875
            
            
            100.0
            %
            
            
            
            $
            37,889
            
            
            100.0
            %





**Operating
      Leases**





**June
                30 2006**
            
            
            
            
            **December
                31, 2005****Type
                of Equipment**
            
            **Net
                Investment**
            
            **Percentage**
            
            
            Type
              of Equipment
            
            **Net
                Investment**
            
            **Percentage**Communications
            
            $
            2,223
            
            
            20.4
            %
            
            Communications
            
            $
            1,248
            
            
            28.6
            %Office
                Equipment
            
            
            1,679
            
            
            15.4
            
            
            Office
                Equipment
            
            
            1,111
            
            
            25.5Computers
            
            
            3,835
            
            
            35.1
            
            
            Industrial
                Equipment
            
            
            1,070
            
            
            24.5Industrial
                Equipment
            
            
            2,128
            
            
            19.5
            
            
            Computers
            
            
            646
            
            
            14.8Medical
                Equipment
            
            
            915
            
            
            8.4
            
            
            Medical
                Equipment
            
            
            255
            
            
            5.9Agriculture
            
            
            58
            
            
            0.5
            
            
            Building
                Systems
            
            
            29
            
            
            0.7Building
                Systems
            
            
            81
            
            
            0.7
            
            
            Agriculture
            
            
            −
            
            
            −$
            10,919
            
            
            100.0
            %
            
            
            
            $
            4,359
            
            
            100.0
            %




17


The
      following
      schedules detail the type of business by standard industrial classification
      that
      leases our equipment as of June 30, 2006 and December 31, 2005 (dollars in
      thousands):





**Direct
      Financing Leases and Notes**





**June
                30, 2006**
            
            
            
            
            **December
                31, 2005****Type
                of Business**
            
            **Net
                Investment**
            
            **Percentage**
            
            
            Type
              of Business
            
            **Net
                Investment**
            
            **Percentage**Services
            
            $
            53,718
            
            
            56.6
            %
            
            Services
            
            $
            21,398
            
            
            56.4
            %Retail
                Trade
            
            
            14,447
            
            
            15.2
            
            
            Retail
                Trade
            
            
            4,543
            
            
            12.0Manufacturing
            
            
            7,460
            
            
            7.9
            
            
            Manufacturing
            
            
            2,900
            
            
            7.7Public
                Administration
            
            
            6,330
            
            
            6.7
            
            
            Wholesale
                Trade
            
            
            2,087
            
            
            5.5Construction
            
            
            2,829
            
            
            3.0
            
            
            Finance/Insurance/Real
                Estate
            
            
            1,458
            
            
            3.8Wholesale
                Trade
            
            
            2,433
            
            
            2.6
            
            
            Transportation/Communication/Energy
            
            
            1,430
            
            
            3.8Transportation/Communication/Energy
            
            
            2,580
            
            
            2.7
            
            
            Construction
            
            
            1,218
            
            
            3.2Finance/Insurance/Real
                Estate
            
            
            1,938
            
            
            2.0
            
            
            Public
                Administration
            
            
            912
            
            
            2.4Agriculture/Forestry/Fishing
            
            
            3,082
            
            
            3.2
            
            
            Agriculture/Forestry/Fishing
            
            
            865
            
            
            2.3Other
            
            
            58
            
            
            0.1
            
            
            Other
            
            
            1,078
            
            
            2.9$
            94,875
            
            
            100.0
            %
            
            
            
            $
            37,889
            
            
            100.0
            %





**Operating
      Leases**





**June
                30, 2006**
            
            
            
            
            **December
                31, 2005****Type
                of Business**
            
            **Net
                Investment**
            
            **Percentage**
            
            
            Type
              of Business
            
            **Net
                Investment**
            
            **Percentage**Services
            
            $
            5,087
            
            
            46.6
            %
            
            Services
            
            $
            1,664
            
            
            38.1
            %Construction
            
            
            1,995
            
            
            18.3
            
            
            Construction
            
            
            977
            
            
            22.4Manufacturing
            
            
            1,074
            
            
            9.8
            
            
            Manufacturing
            
            
            683
            
            
            15.7Public
                Administration
            
            
            809
            
            
            7.4
            
            
            Mining
            
            
            281
            
            
            6.5Finance/Insurance/Real
                Estate
            
            
            476
            
            
            4.4
            
            
            Finance/Insurance/Real
                Estate
            
            
            264
            
            
            6.1Retail
                Trade
            
            
            852
            
            
            7.8
            
            
            Retail
                Trade
            
            
            215
            
            
            4.9Wholesale
                Trade
            
            
            270
            
            
            2.5
            
            
            Wholesale
                Trade
            
            
            105
            
            
            2.4Transportation/Communication/Energy
            
            
            263
            
            
            2.4
            
            
            Public
                Administration
            
            
            92
            
            
            2.1Agriculture
            
            
            93
            
            
            0.8
            
            
            Transportation/Communication/Energy
            
            
            78
            
            
            1.8$
            10,919
            
            
            100.0
            %
            
            
            
            $
            4,359
            
            
            100.0
            %





In
      evaluating our allowance for possible uncollectible accounts, we consider our
      contractual delinquencies, economic conditions and trends, industry statistics,
      lease portfolio characteristics and our General Partner's prior experience
      with
      similar lease assets. As of June 30, 2006, our credit evaluation indicated
      the
      need for an allowance for possible losses on our finance assets of
      $200,000.





18


**Results
      of Operations**





We
      commenced our operations on April 14, 2005. The results of operations discussed
      below are for the three and six months ended June 30, 2006 and for the period
      April 14, 2005 to June 30, 2005 (hereafter referred to as the period ended
      June
      30, 2005). On June 21, 2005, we obtained a $75.0 million credit facility with
      WestLB, which was increased to $150 million on June 30, 2006. This facility
      will
      allow us to leverage our equity to acquire additional equipment financings.
      Under the terms of the WestLB credit facility, we can leverage our equity 7.5
      to
      1.





*Revenues
      − Three and Six Months Ended June 30, 2006*





Revenues
      increased to $2,306,243 and $3,945,400 for the three and six months ended June
      30, 2006, respectively, as compared to $54,124 to the three and six month
      periods ended June 30, 2005. Our investment in equipment financing assets
      increased to $105,594,076 as of June 30, 2006 as compared to $5,898,622 as
      of
      June 30, 2005, an increase of $99,695,454. As of June 30, 2006, we raised
      $33,695,632 through the sale of partnership units as compared to $4,809,985
      as
      of June 30, 2005, an increase of $28,885,647. These increases are a result
      of
      commencing operations upon our breaking escrow in April 2005, raising additional
      equity via the sale of partnership units and establishing the $75.0 million
      (increased to $150.0 million in June 2006) WestLB debt facility in June 2005.
      We
      expect our revenues to increase as we continue to acquire more equipment finance
      assets from our General Partner. Our offering period will end during the fourth
      calendar quarter of 2006.





*Expenses
      − Three and Six Months Ended June 30, 2006*





Operating
      expenses increased to $2,419,025 and $3,970,555 for the three and six months
      ended June 30, 2006, respectively, as compared to the prior year period. These
      increases are a result of commencing operations on April 14, 2005. We expect
      our
      operating expenses to increase as our portfolio of equipment financings
      increases.





**Liquidity
      and Capital Resources**





Our
      major
      sources of liquidity have been obtained by the sale of partnership units and
      bank debt. Our primary cash requirements, in addition to normal operating
      expenses, are for debt service, investment in leases and distributions to
      partners. In addition to cash generated from operations, we plan to meet our
      cash requirements through the sale of additional partnership units and our
      credit facility.





The
      following table sets forth our sources and uses of cash for the period
      indicated:







**Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**Net
                cash provided by operating activities
            
            $
            2,344,007
            
            $
            125,079Net
                cash used in investing activities
            
            
            (56,302,111
            )
            
            (5,903,822
            )Net
                cash provided by financing activities
            
            
            66,337,860
            
            
            6,495,370Increase
                in cash
            
            $
            12,379,756
            
            $
            716,627





Our
      liquidity is affected by our ability to leverage our portfolio through expansion
      of our credit facility. We renewed and increased our credit facility from $75.0
      million to $150.0 million on June 30, 2006, which will allow us to
      leverage the additional equity raised. Our debt to equity ratio was 2.9 to
      1 at June 30, 2006. Changes in interest rates will affect the market value
      of our portfolio and our ability to obtain financing. In general, the market
      value of an equipment lease will change in inverse relation to an interest
      rate
      change where the lease has a fixed rate of return. Accordingly, in a period
      of
      rising interest rates, the market value of our equipment leases will decrease.
      A
      decrease in the market value of our portfolio will adversely affect our ability
      to obtain financing against our portfolio or to liquidate it. In addition,
      the
      terms of our credit facility with WestLB include financial covenants. As of
      June
      30, 2006, we were in compliance with all such covenants. If we do not meet
      the
      requirements of the covenants in the future, a default could occur that would
      have an adverse effect on our operations and could force us to liquidate our
      portfolio. In the event that our WestLB line of credit is not renewed in June
      2007, we would seek to obtain an alternative credit facility with comparable
      terms.




19


Our
      liquidity could also be affected by higher than expected equipment lease
      defaults. Higher than expected equipment lease defaults will result in a loss
      of
      anticipated revenues. These losses may adversely affect our ability to make
      distributions to partners and, if the level of defaults is sufficiently large,
      may result in our inability to fully recover our investment in the underlying
      equipment. In evaluating our allowance for possible losses on uncollectible
      leases, we consider our contractual delinquencies, economic conditions and
      trends, industry statistics, lease portfolio characteristics and our General
      Partner's management's prior experience with similar lease assets. At June
      30,
      2006, our credit evaluation indicated the need for an allowance for possible
      losses of $200,000. As our lease portfolio increases, we anticipate the
      allowance for possible losses will increase.





During
      the six months ended June 30, 2006, we acquired $63.6 million in leases and
      notes which was funded by $57.3 million of debt, and $6.3 million of
      our cash.





Partner’s
      distributions paid for the six months ended June 30, 2006 were $701,849.
      Distributions to partners were 8% of invested capital.





**ITEM
      3.****QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





At
      June
      30, 2006, our outstanding debt totaled $83,315,780 which consisted of fixed
      rate
      debt of $12,337,924 and variable rate debt of $70,977,856. To mitigate interest
      rate risk we employ a hedging strategy using derivative financial instruments
      such as interest rate swaps, which fixes the interest rate at 5.89% on a
      weighted average basis.





**ITEM
      4.****CONTROLS
      AND PROCEDURES**





We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our periodic reports under the
      Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
      and reported within the time periods specified in the U.S. Securities and
      Exchange Commission’s rules and forms, and that such information is accumulated
      and communicated to our management, including our General Partner’s Chief
      Executive Officer and Chief Financial Officer, as appropriate, to allow timely
      decisions regarding required disclosure. In designing and evaluating the
      disclosure controls and procedures, our management recognized that any controls
      and procedures, no matter how well designed and operated, can provide only
      reasonable assurance of achieving the desired control objectives, and our
      management necessarily was required to apply its judgment in evaluating the
      cost-benefit relationship of possible controls and procedures.





Under
      the
      supervision of our General Partner’s Chief Executive Officer and Chief Financial
      Officer, we have carried out an evaluation of the effectiveness of our
      disclosure controls and procedures as of the end of the period covered by this
      report. Based upon that evaluation, our General Partner’s Chief Executive
      Officer and Chief Financial Officer concluded that our disclosure controls
      and
      procedures are effective at the reasonable assurance level.





There
      have been no significant changes in our internal controls over financial
      reporting during the three months ended June 30, 2006 that has materially
      affected, or are reasonably likely to materially affect, our internal control
      over financial reporting.


20


**PART
      II - OTHER INFORMATION**





**ITEM****2.****UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**





Our
      limited partner units are not publicly traded. As of June 30, 2006, we had
      534
      limited partners.





We
      are
      currently offering units of our limited partnership interest pursuant to a
      registration statement (File No. 333-116595) that was made effective by the
      Securities and Exchange Commission on December 22, 2004, when the offering
      commenced. The dealer manager for the offering is Anthem Securities, Inc. We
      registered the sale of 600,000 units of limited partnership interest at an
      aggregate offering price of $60,000,000.





The
      following table shows the use of proceeds from the offering since the effective
      date of the registration statement through June 30, 2006.





Offering
                proceeds
            
            $
            33,695,632Expenses:Sales
                commissions(1)
            
            $
            2,262,673Underwriting
                fees(1)
            
            
            978,598Organization
                and offering expenses(2)
            
            
            1,179,335Public
                offering expenses
            
            
            4,420,606Net
                offering proceeds
            
            
            29,275,026Reserves
            
            
            292,750Total
                proceeds available for investment
            
            $
            28,982,276Use
                of proceeds for investment (estimated):Used
                in operations(3)
            
            
            1,514,558Acquisition
                of lease portfolios(4)
            
            
            10,365,853Working
                capital
            
            
            17,101,865





(1)
            Paid
                to an affiliate of the general partner which is then remitted to
                third
                parties.(2)
            Paid
                to the general partner.(3)
            The
                general partner was reimbursed $630,719 for operating expenses and
                asset
                management fees of $461,929.(4)
            Included
                are asset acquisition fees of $2,223,284 that were paid to our general
                partner.





**ITEM
      6.****EXHIBITS**





Exhibit
                No.
            
            Description10.5
            
            Second
                Amendment to WestLB AG Secured Loan Agreement31.1
            
            Rule
                13a-14(a)/Rule 15d-14(a) Certification of Chief Executive
                Officer.31.2
            
            Rule
                13a-14(a)/Rule 15d-14(a) Certification of Chief Financial
                Officer.32.1
            
            Certification
                of Chief Executive Officer pursuant to Section 1350 of Chapter 63
                of Title
                18 of the United States Code.32.2
            
            Certification
                of Chief Financial Officer pursuant to Section 1350 of Chapter 63
                of Title
                18 of the United States Code.





21


**SIGNATURES**








Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.








**LEASE
                EQUITY APPRECIATION FUND II, L.P.**A
                Delaware Limited PartnershipBy:
                LEAF Financial Corporation, its General PartnerAugust
                14, 2006
            /s/
                Crit DeMent
              CRIT
                DEMENTChairman
                and Chief Executive Officer of the General PartnerAugust
                14, 2006
            /s/
                Robert K. Moskovitz
              ROBERT
                K. MOSKOVITZChief
                Financial Officer, Treasurer of the General Partner








22