<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 June 30, 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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Part I: FINANCIAL INFORMATION
Item 1: Financial Statements


                      Commonwealth Income & Growth Fund II

                                 Balance Sheets
<TABLE>
<CAPTION>

                                                                                                     (Audited)
                                                                           June 30,                  December 31,
                                                                             1998                        1997
                                                        --------------------------------------------------------
<S>                                                                       <C>                         <C>
Assets
Cash and cash equivalents                                                 $ 246,001                   $ 258,167
Lease income receivable                                                     402,100                     113,500
Accounts receivable - General Partner                                        17,587                      15,821
Interest and other receivables                                               32,900                         100
                                                        --------------------------------------------------------
                                                                            698,588                     387,588
Computer equipment, at cost                                              13,388,047                  11,764,757
Accumulated depreciation                                                 (4,711,603)                 (3,175,757)
                                                        --------------------------------------------------------
                                                                          8,676,444                   8,589,000
Organization costs and deferred expenses,  net of
  accumulated amortization of $330,408 for 1998
  and $232,708 for 1997                                                     361,016                     379,821
                                                        --------------------------------------------------------
Total assets                                                            $ 9,736,048                 $ 9,356,409
                                                        --------------------------------------------------------
                                                        --------------------------------------------------------

Liabilities and partners' capital
Accounts payable                                                           $ 87,789                    $ 96,326
Accounts payable - Commonwealth Capital Corp.                                     -                      68,265
Unearned lease income                                                       178,617                     217,503
Payables for computer equipment                                             719,596                     502,721
Notes payable                                                             2,524,836                   1,954,120
                                                        --------------------------------------------------------
Total liabilities                                                         3,510,838                   2,838,935

Partners' capital:
   General partner                                                            1,000                       1,000
   Limited partners                                                       6,224,210                   6,516,474
                                                        --------------------------------------------------------
Total partners' capital                                                   6,225,210                   6,517,474
                                                        --------------------------------------------------------
Total liabilities and partners' capital                                 $ 9,736,048                 $ 9,356,409
                                                        --------------------------------------------------------
                                                        --------------------------------------------------------


</TABLE>



See accompanying notes.




<PAGE>


                      Commonwealth Income & Growth Fund II

                            Statements of Operations




<TABLE>
<CAPTION>

                                                        Three Months Ended        Six Months Ended
                                                             June 30,                 June 30,
                                                       1998           1997        1998         1997
                                                    --------------------------------------------------
<S>                                                  <C>          <C>          <C>          <C>
Income:
   Lease                                             $1,144,671   $  476,392   $2,064,505   $  844,347
   Interest & other                                       3,478       39,484        7,852       76,439
                                                    --------------------------------------------------
                                                      1,148,149      515,876    2,072,357      920,786
Expenses:
   Operating, excluding depreciation                     18,079       13,000       27,926       15,318
   Equipment management fee - General Partner            57,234       23,819      103,225       42,217
   Interest                                              55,336            0       79,255            0
   Depreciation                                         815,104      408,373    1,585,784      727,022
   Amortization of organization costs and deferred
        expenses                                         50,890       20,766      100,896       50,268
  Loss on sale of computer equipment                      1,053       31,955        1,053       31,955
                                                    --------------------------------------------------
                                                        997,696      497,913    1,898,139      866,780
                                                    --------------------------------------------------
Net income                                           $  150,453   $   17,963   $  174,218   $   54,006
                                                    --------------------------------------------------
                                                    --------------------------------------------------

Net income per equivalent limited partnership unit   $     0.33   $     0.04   $     0.38   $     0.12
                                                    --------------------------------------------------
                                                    --------------------------------------------------
Weighted average number of equivalent limited
  partnership units outstanding during the periods      454,824      454,824      454,824      441,440
                                                     ----------   ----------   ----------   ----------
                                                     ----------   ----------   ----------   ----------
</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
Net income                                                                     2,332       148,121      150,453
Distributions                                                                 (2,332)     (230,909)    (233,241)
                                                  --------------------------------------------------------------
     Partners' capital - June 30, 1998                50       461,817    $    1,000    $6,224,210   $6,225,210
                                                  --------------------------------------------------------------
                                                  --------------------------------------------------------------
</TABLE>




<PAGE>

                      Commonwealth Income & Growth Fund II

                            Statements of Cash Flows

                 For the Six Months Ended June 30, 1998 and 1997



<TABLE>
<CAPTION>

                                                                      1998               1997
                                                                    ----------------------------

<S>                                                                  <C>                <C>
Net income                                                           $ 174,218          $ 54,006
Adjustments to reconcile net income to net cash
   provided by operating activities:
     Depreciation and amortization                                   1,686,680           777,290
     Loss on sale of computer equipment                                  1,054            31,955
     Other non-cash activities included in determination of
         net income                                                   (614,311)          (77,968)
     Changes in operating assets and liabilities:
       Lease  income receivables                                      (288,600)          (36,997)
       Interest and other receivables                                  (34,566)          (71,892)
       Accounts payable                                                 (8,537)          (36,771)
       Accounts payable - Commonwealth Capital Corp.                   (68,265)                -
      Unearned lease income                                            (38,886)            5,102
      Organization cost paid to the General Partner                          -           (12,451)
                                                                    ----------------------------
Net cash provided by operating activities                              808,787           632,274
Investing activities
Capital expenditures                                                  (301,289)       (1,077,466)
Net proceeds from sale of computer equipment                            28,909            10,585
Equipment acquisition fees paid to the General Partner                 (70,343)          (79,855)
                                                                    ----------------------------
Net cash used in investing activities                                 (342,723)       (1,146,736)

Financing activities
Partners' contributions                                                      -         1,185,785
Offering costs                                                               -          (129,680)
Offering costs paid to the General Partner                                   -           (23,123)
Distributions to Partners                                             (466,482)         (442,233)
Debt placement fee paid to the General Partner                         (11,748)                -
                                                                    ----------------------------
Net cash provided by (used in) financing activities                   (478,230)          590,749
                                                                    ----------------------------
Net increase (decrease) in cash and cash equivalents                   (12,166)           76,287
Cash and cash equivalents at beginning of year                         258,167         2,552,352
                                                                    ----------------------------
Cash and cash equivalents at end of period                           $ 246,001       $ 2,628,639
                                                                    ----------------------------
                                                                    ----------------------------


</TABLE>


See accompanying notes.




<PAGE>


                      Commonwealth Income & Growth Fund II

                          Notes to Financial Statements

                                  June 30, 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 six months ended June 30,
1998, were from cash from operations of $809,000. The Partnership's primary
sources of capital for the six months ended June 30, 1997, were from Partners'
contributions of $1,186,000 and cash from operations of $632,000. The primary
uses of cash for the six months ended June 30, 1998 and 1997, were for capital
expenditures for new equipment totaling $301,000 and $1,077,000, respectively,
the payment of preferred distributions to partners of $466,000 and $442,000
respectively, and the payment of acquisition fees of $70,000 and $80,000
respectively. In addition, the Partnership paid $12,000 of finance fees for the
six months ended June 30, 1998, and $153,000 in offering cost for the six months
ended June 30, 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 June 30, 1998 and December 31, 1997 the Partnership had
approximately $246,000 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 June 30, 1998, the Partnership had future minimum rentals on noncancellable
operating leases of $1,861,000 for the year ending December 31, 1998 and
$4,667,000 thereafter. At June 30, 1998, the outstanding debt was $2,525,000,
with interest rates ranging from 6.4% to 8.2%, and will be payable through
February 2001.

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 June 30, 1998, the Partnership recognized income of
$1,148,000 and expenses of $998,000, resulting in net income of $150,000. 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.

Lease income increased by 141% from $476,000 for the quarter ended June 30,
1997, to $1,145,000 for the quarter ended June 30, 1998, primarily due to
utilizing cash available from Partners' contributions for the purchase of
Equipment, which in turn generated more lease income. During the six months
ended June 30, 1998, the Partnership expended $301,000 and assumed debt and
equipment payable of $1,380,000 to acquire seven leases, which generated
approximately $148,000 in revenue.

Interest income decreased 92% from $39,000 for the quarter ended June 30, 1997,
to $3,000 for the quarter ended June 30, 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 38% from approximately
$13,000 for the quarter ended June 30, 1997, to $18,000 for the quarter ended
June 30, 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 148% from approximately $23,000 for the quarter ended
June 30, 1997, to $57,000 for the quarter ended June 30, 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 102% from approximately $429,000 for the quarter ended
June 30, 1997, to $866,000 for the quarter ended June 30, 1998, which is
attributable to the purchase of approximately $4,369,000 in additional
equipment.

For the six month period ended June 30, 1998, the Partnership generated cash
flow from operating activities of $809,000, which includes net income of
$174,000, and depreciation and amortization expenses of $1,687,000. Other
noncash activities included in the determination of net income includes direct
payments of lease income by lessees to banks of $604,000 and lease income paid
to original lessors in lieu of cash payments for computer equipment of $10,000.

For the six month period ended June 30, 1997, the Partnership generated cash
flow from operating activities of $645,000, which includes net income of
$54,000, and depreciation and amortization expenses of $777,000. Other noncash
activities included in the determination of net income includes lease income
paid to original lessors in lieu of cash payments for computer equipment of
$78,000.



<PAGE>



                      Commonwealth Income & Growth Fund II


Part II:   OTHER INFORMATION

         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



<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