<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 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 March 31, 1998

                                       or

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


  For the transition period from                        to                    .
                                ------------------------  --------------------

                        Commission File Number: 33-89476

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

             Pennsylvania                                23-2795120
    (State or other jurisdiction of         (I.R.S. Employer identification No.)
    incorporation or organization)

                            1160 West Swedesford Road
                           Berwyn, Pennsylvania 19312

          (Address, including zip code, of principal executive offices)

                                 (610) 647-6800
               (Registrant's telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports to be 
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during 
the preceding 12 months (or for such shorter period that the registrant was 
required to file such reports), and (2) has been subject to such filing 
requirements for the past 90 days:

                                        YES [X]        NO [ ]


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                      Commonwealth Income & Growth Fund II

                                Balance Sheets

<TABLE>
<CAPTION>
  
                                                                            (Audited)
                                                         March 31,         December 31,
                                                           1998                1997
                                                        -----------       ------------
Assets
                                                                                                        
<S>                                                      <C>               <C>
Cash and cash equivalents............................     $285,836          $258,167
Lease income receivable..............................      320,062           113,500
Accounts receivable - General Partner................            -            15,821
Other receivables and deposits.......................        2,613               100
                                                        -----------       ------------
                                                           608,511           387,588
                                                                                         
Computer equipment, at cost..........................   12,521,649        11,764,757
Accumulated depreciation.............................   (3,946,437)       (3,175,757)
                                                        -----------       ------------
                                                         8,575,212         8,589,000
                                                                                         
Organization costs and deferred expenses, net of
  accumulated amortization of $282,714 for 1998
  and $232,708 for 1997..............................      377,101           379,821
                                                        -----------       ------------
                                                                                         
Total assets.........................................   $9,560,824        $9,356,409
                                                        -----------       ------------
                                                        -----------       ------------
Liabilities and partners' capital
                                                                                         
Accounts payable.....................................      $82,386           $96,326
Accounts payable - Commonwealth Capital Corp.........       33,265            68,265
Accounts payable - General Partner...................       48,621                --
Unearned lease income................................      214,390           217,503
Payables for computer equipment......................    1,070,018           502,721
Notes payable........................................    1,804,146         1,954,120
                                                        -----------       ------------
Total liabilities....................................    3,252,826         2,838,935
                                                                                          
Partners' capital:
                                                                                          
   General partner...................................        1,000             1,000
   Limited partners..................................    6,306,998         6,516,474
                                                        -----------       ------------
Total partners' capital..............................    6,307,998         6,517,474
                                                        -----------       ------------
                                                                                         
Total liabilities and partners' capital..............   $9,560,824        $9,356,409
                                                        -----------       ------------
                                                        -----------       ------------
</TABLE>

See accompanying notes.


<PAGE>

                      Commonwealth Income & Growth Fund II

                            Statements of Operations

<TABLE>
<CAPTION>
 
                                                              Three Months Ended
                                                                  March 31,
                                                                  1998 1997
                                                            ----------------------
                                                              1998          1997
                                                            --------      --------
<S>                                                         <C>           <C>
Income:                                                                            
   Lease...............................................     $919,834      $367,955
   Interest & other....................................        4,374        36,955
                                                            --------      --------
                                                             924,208       404,910
                                                                                   
Expenses:                                                                           
   Operating, excluding depreciation...................        9,847         2,318
   Equipment management fee - General Partner..........       45,991        18,398
   Depreciation........................................      770,680       318,649
   Amortization of organization costs and deferred
        expenses.......................................       50,006        29,502
  Interest.............................................       23,919          --
                                                            --------      --------
                                                             900,443       368,867
                                                            --------      --------
Net income.............................................      $23,765       $36,043
                                                            --------      --------
                                                            --------      --------
Net income per equivalent limited partnership unit.....        $0.05         $0.08
                                                            --------      --------
                                                            --------      --------
Weighted average number of equivalent limited                                      
  partnership units outstanding during the periods......     454,824       427,906
                                                            --------      --------
                                                            --------      --------
</TABLE>

See accompanying notes.


<PAGE>

                      Commonwealth Income & Growth Fund II

                         Statement of Partners' Capital

<TABLE>
<CAPTION>
                                                 General          Limited                                                      
                                                 Partner          Partner          General          Limited                    
                                                  Units            Units           Partner          Partner           Total    
                                              -------------    -------------    -------------    -------------    -------------
<S>                                           <C>              <C>              <C>              <C>              <C>
Partners' capital - December 31, 1995.......          50          183,947           $1,000         $3,155,521       $3,156,521
Contributions...............................        --            218,572             --            4,371,440        4,371,440
Offering costs..............................                                          --             (487,266)        (487,266)
Net income (loss)...........................                                         6,080             (6,810)            (730)
Distributions...............................                                        (6,080)          (601,965)        (608,045)
                                              -------------    -------------    -------------    -------------    -------------
   Partners' capital - December 31, 1996....          50          402,519            1,000          6,430,920        6,431,920
                                                                                                                               
Contributions...............................        --             59,298             --            1,185,785        1,185,785
Offering costs..............................                                           --            (129,680)        (129,680)
Net income (loss)...........................                                         9,087            (70,924)         (61,837)
Distributions...............................                                        (9,087)          (899,627)        (908,714)
                                              -------------    -------------    -------------    -------------    -------------
   Partners' capital - December 31, 1997....        50            461,817            1,000         6,516,474         6,517,474

Net income..................................                                         2,332            21,433            23,765
Distributions...............................                                        (2,332)         (230,909)         (233,241)
                                              -------------    -------------    -------------    -------------    -------------
                                              -------------    -------------    -------------    -------------    -------------
   Partners' capital - March 31, 1998.......        50            461,817           $1,000        $6,306,998        $6,307,998
                                              -------------    -------------    -------------    -------------    -------------
                                              -------------    -------------    -------------    -------------    -------------
</TABLE>

See accompanying notes.


<PAGE>

                      Commonwealth Income & Growth Fund II

                            Statements of Cash Flows

               For the Three Months Ended March 31, 1998 and 1997

<TABLE>
<CAPTION>

                                                                          1998              1997
                                                                       ----------        ----------
<S>                                                                     <C>              <C>
                                                                                                     
Operating activities
                                                                                                      
Net income......................................................        $23,765             $36,043
Adjustments to reconcile net income to net cash
   provided by operating activities:
                                                                                                        
     Depreciation and amortization..............................        820,686             348,151
     Other non-cash activities included in determination of
         net income.............................................       (149,974)               --
     Changes in operating assets and liabilities:
       Lease  income receivables................................       (194,653)            (10,764)
       Interest and other receivables...........................         13,308             (15,826)
       Accounts payable.........................................        (13,940)            (30,122)
       Accounts payable - Commonwealth Capital Corp.............        (35,000)               --
       Accounts payable - General Partner.......................         48,621                --
       Unearned lease income....................................         (3,113)               --
                                                                       ----------        ----------
Net cash provided by operating activities.......................        509,700             327,482
                                                                                                   
Investing activities                                                                               
Capital expenditures............................................       (201,504)           (477,465)
Equipment acquisition fees paid to the General Partner..........        (39,587)            (33,349)
                                                                       ----------        ----------
Net cash used in investing activities...........................       (241,091)           (510,814)
                                                                                                       
Financing activities
Partners' contributions.........................................           --               752,040
Offering costs..................................................           --               (59,787)
Offering costs paid to the General Partner......................           --               (22,561)
Distributions to Partners.......................................       (233,241)           (213,154)
Debt placement fee paid to the General Partner..................         (7,699)               --
                                                                       ----------        ----------
Net cash provided by (used in) financing activities.............       (240,940)            456,538
                                                                       ----------        ----------
Net increase in cash and cash equivalents.......................         27,669             273,206
Cash and cash equivalents at begining of year...................        258,167           2,552,352
                                                                       ----------        ----------
                                                                       ----------        ----------
Cash and cash equivalents at end of period......................       $285,836          $2,825,558
                                                                       ----------        ----------
                                                                       ----------        ----------
</TABLE>

See accompanying notes.


<PAGE>

                      Commonwealth Income & Growth Fund II

                          Notes to Financial Statements

                                 March 31, 1998

Basis of Presentation

    The financial information presented as of any date other than December 31 
has been prepared from the books and records without audit. Financial 
information as of December 31 has been derived from the audited financial 
statements of Commonwealth Income & Growth Fund I (the "Partnership"), but 
does not include all disclosures required by generally accepted accounting 
principles. In the opinion of management, all adjustments, consisting only of 
normal recurring adjustments, necessary for a fair presentation of the 
financial information for the periods indicated have been included. For 
further information regarding the Partnership's accounting policies, refer to 
the financial statements and related notes included in the Partnership's 
annual report on Form 10-K for the year ended December 31, 1997.

Net Income per Equivalent Limited Partnership Unit

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


<PAGE>

                      Commonwealth Income & Growth Fund II

Item 2: Management's Discussion and Analysis of Financial Condition
        and Results of Operations

Liquidity and Capital Resources

    The Partnership satisfied its minimum offering requirements and commenced 
operations on September 22, 1995. On that date, subscribers for 126,118 Units 
were admitted as Limited Partners of the Partnership. On May 12, 1997, the 
Partnership terminated its offering of Units with 461,817 ($9,235,185) Units 
sold.

    The Partnership's primary sources of capital for the three months ended 
March 31, 1998, were from cash from operations of $510,000. The Partnership's 
primary sources of capital for the three months ended March 31, 1997, were 
from Partners' contributions of $752,000 and cash from operations of 
$327,000. The primary uses of cash for the three months ended March 31, 1998 
and 1997, were for capital expenditures for new equipment totaling $202,000 
and $477,000, respectively, the payment of preferred distributions to 
partners of $233,000 and $213,000 respectively, and the payment of 
acquisition fees of $40,000 and $33,000 respectively. In addition, the 
Partnership payed $8,000 of finance fees for the three months ended March 31, 
1998, and $82,000 in offering cost for the three months ended March 31, 1997.

    Currently, Partners' contributions and rental income from the 
Partnership's leases are invested in money market accounts investing directly 
in treasury obligations pending the Partnership's use of such funds to 
purchase additional computer equipment, to pay Partnership expenses or to 
make distributions to the Partners. At March 31, 1998 and December 31, 1997 
the Partnership had approximately $286,000 and $258,000, respectively, 
invested in these money market accounts.

    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 March 31, 1998, the Partnership had future minimum rentals on 
noncancellable operating leases of $2,547,000 for the year ending December 
31, 1998 and $4,095,000 thereafter. At March 31, 1998, the outstanding debt 
was $1,804,000, with interest rates ranging from 6.4% to 8.2%, and will be 
payable through September 2000.

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

Results of Operations

    For the quarter ended March 31, 1998, the Partnership recognized income 
of $924,000 and expenses of $900,000, resulting in net income of $24,000. For 
the quarter ended March 31, 1997, the Partnership recognized income of 
$405,000 and expenses of $369,000, resulting in net income of $36,000.

    Lease income increased by 150% from $368,000 for the quarter ended March 
31, 1997, to $920,000 for the quarter ended March 31, 1998, primarily due to 
utilizing cash available from Partners' contributions for the purchase of 
Equipment, which in turn generated more lease income. During the three months 
ended March 31, 1998, the Partnership expended $202,000 and assumed debt and 
equipment payable of $1,070,000 to acquire four leases, which generated 
approximately $67,000 in revenue.

    Interest income decreased 89% from $37,000 for the quarter ended March 
31, 1997, to $4,000 for the quarter ended March 31, 1998. This decrease is 
the result of capital contributions being utilized for equipment purchases.


<PAGE>

                      Commonwealth Income & Growth Fund II

    Operating expenses, excluding depreciation, primarily consist of 
accounting, legal, and outside service fees. The expense increased 400% from 
approximately $2,000 for the quarter ended March 31, 1997, to $10,000 for the 
quarter ended March 31, 1998, which is primarily attributable to the accrual 
of accounting fees.

    The equipment management fee is equal to 5% of the gross lease revenue 
attributable to equipment which is subject to operating leases. The equipment 
management fee increased 156% from approximately $18,000 for the quarter 
ended March 31, 1997, to $46,000 for the quarter ended March 31, 1998, which 
is consistent with the increase in lease income.

    Depreciation and amortization expenses consist of depreciation on 
computer equipment, amortization of organizational costs, and equipment 
acquisition fees. The expenses increased 136% from approximately $348,000 for 
the quarter ended March 31, 1997, to $821,000 for the quarter ended March 31, 
1998, which is attributable to the purchase of approximately $7,264,000 in 
additional equipment.

    For the three month period ended March 31, 1998, the Partnership 
generated cash flow from operating activities of $510,000, which includes net 
income of $24,000, and depreciation and amortization expenses of $821,000. 
Other noncash activities included in the determination of net income includes 
direct payments of lease income by lessees to banks of $150,000.

    For the three month period ended March 31, 1997, the Partnership 
generated cash flow from operating activities of $327,000, which includes net 
income of $36,000, and depreciation and amortization expenses of $348,000.


<PAGE>

                      Commonwealth Income & Growth Fund II

Part II:   OTHER INFORMATION


<TABLE>
<CAPTION>

         <S>               <C>
         Item 1.           Legal Proceedings.

                           Inapplicable


         Item 2.           Changes in Securities.

                           Inapplicable


         Item 3.           Defaults Upon Senior Securities.

                           Inapplicable


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

                           Inapplicable


         Item 5.           Other Information.

                           Inapplicable


         Item 6.           Exhibits and Reports on Form 8-K.

                           a)  Exhibits: None

                           b)  Report on Form 8-K: None


</TABLE>


<PAGE>

                                    SIGNATURE

    Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned, thereunto duly authorized.

                                            COMMONWEALTH INCOME & GROWTH FUND II

                                            BY: COMMONWEALTH INCOME & GROWTH
                                                FUND, INC. General Partner



                                            By:
------------------                             -------------------------------
Date                                           George S. Springsteen
                                               President