U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C., 20549

                                   FORM 10-QSB



(Mark One)

X    QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2001.

     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934 FOR THE TRANSITION PERIOD FROM TO


                         Commission File Number 1-12738


                            ONSITE ENERGY CORPORATION
                 (Name of small business issuer in its charter)

             Delaware                                   33-0576371
 (State or other jurisdiction of           (I.R.S. Employer Identification No.)
  incorporation or organization)


             701 Palomar Airport Road, Suite 200, Carlsbad, CA 92009
                    (Address of principal executive offices)

                                 (760) 931-2400
                           (Issuer's telephone number)

Check whether issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 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

The number of Class A common stock, $0.001 par value,  outstanding as of January
25, 2002 is 21,736,000.

<PAGE>2
Part I - Financial Information
Item 1. Financial Statements

                            Onsite Energy Corporation
                      Condensed Consolidated Balance Sheet
                 (Amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
                                                                    Balance at
                                                       December 31, 2001   June 30, 2001
                                                       -----------------   -------------
                                                          (Unaudited)         (Audited)
<S>                                                   <C>                  <C>
ASSETS

Current Assets:
  Cash                                                     $     701          $     113
  Cash-restricted                                                220                 75
  Accounts receivable, net of allowance for doubtful
    accounts of $158 and $38 as of December 31, 2001
    and June 30, 2001, respectively                            1,202              1,947
  Deferred project costs                                         153                239
  Other assets                                                    17                 27
                                                           ---------          ---------
    TOTAL CURRENT ASSETS                                       2,293              2,401
  Property and equipment, net of accumulated
    depreciation and amortization of $292 and $563 as
    of December 31, 2001 and June 30, 2001, respectively          76                220
  Note receivable                                                600                600
  Other assets                                                    45                 36
                                                           ---------          ---------
TOTAL ASSETS                                               $   3,014          $   3,257
                                                           =========          =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
  Notes payable, current portion                           $     483          $     265
  Capitalized lease obligation, current portion                    -                171
  Liabilities in excess of assets held for sale                2,767              3,139
  Accounts payable                                             1,271              1,693
  Billings in excess of costs and estimated earnings
    on uncompleted contract                                      264                278
  Accrued expenses and other liabilities                       2,296              2,474
                                                           ---------          ---------
    TOTAL CURRENT LIABILITIES                                  7,081              8,020
Long-Term Liabilities:
  Notes payable, less current portion                            117                  -
  Deferred income, less current portion                          566                731
                                                           ---------          ---------
    TOTAL LIABILITIES                                          7,764              8,751
                                                           ---------          ---------
Commitments and contingencies

Stockholders' Deficit

  Preferred Stock, Series C, $.001 par value,
    742 shares authorized, 649 issued and outstanding
    as of December 31, 2001 and June 30, 2001
    (aggregate $3,246 liquidation preference)                      1                  1
  Preferred Stock, Series D, $.001 par value,
    158 shares authorized, none issued and outstanding
    as of December 31, 2001 and June 30, 2001                      -                  -
  Preferred Stock, Series E, $.001 par value,
    50 shares authorized, issued and outstanding as of
    December 31, 2001 and June 30, 2001 (aggregate
    $1,000 liquidation preference)                                 -                  -
  Common Stock, $.001 par value, 40,000 shares authorized
    as of December 31, 2001 and June 30, 2001:
      Class A common stock, 37,999 shares authorized as of
        December 31, 2001 and June 30, 2001, 21,736 and 20,439
        issued and outstanding as of December 31, 2001 and
        June 30, 2001, respectively                               22                 20
      Class B common stock, 1,000 shares authorized,
        none issued and outstanding as December 31, 2001
        and June 30, 2001                                          -                  -
  Additional paid-in capital                                  28,033             27,956
  Notes receivable - stockholders'                              (248)              (150)
  Accumulated deficit                                        (32,558)           (33,321)
                                                           ---------          ---------
    TOTAL STOCKHOLDERS' DEFICIT                               (4,750)            (5,494)
                                                           ---------          ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                $   3,014          $   3,257
                                                           =========          =========
</TABLE>

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

<PAGE>3

                            Onsite Energy Corporation
                 Condensed Consolidated Statement of Operations
                 (Amounts in thousands except per share amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                           Three Months Ended              Six Months Ended
                                                                               December 31,                   December 31,
                                                         Notes            2001         2000               2001          2000
                                                                        --------     --------          --------      --------
<S>                                                    <C>           <C>               <C>           <C>           <C>
Revenues                                                                $  2,029     $  3,207          $  5,187      $  5,177
Project incentive revenue                                                  1,031          233             1,302         1,077
                                                                        --------     --------          --------      --------
  Total revenues                                                           3,060        3,440             6,489         6,254

Cost of revenues                                                           1,606        2,286             4,138         3,590
                                                                        --------     --------          --------      --------
  Gross profit                                                             1,454        1,154             2,351         2,664
Selling, general and administrative expenses                               1,021          829             1,896         1,642
Depreciation and amortization expense                                          8            7                14            12
Compensation adjustment under variable
  incentive stock option plan                                                (63)        (206)              (68)          (29)
                                                                        --------     --------          --------      --------
  Operating income                                                           488          524               509         1,039
                                                                        --------     --------          --------      --------
Other income (expense):
  Interest expense                                                           (28)         (43)              (59)          (59)
  Other income                                                                10           15                 3            15
                                                                        --------     --------          --------      --------
    Total other expense                                                      (18)         (28)              (56)          (44)
                                                                        --------     --------          --------      --------
Income before provision for income taxes
  and extraordinary item                                                     470          496               453           995

Provision for income taxes                                                     6           17                 7            17
                                                                        --------     --------          --------      --------
Net income from continuing operations                                        464          479               446           978

Discontinued operations:
  Income from discontinued operations;                     5                  89            1               109            22
  net of tax provision                                                        (1)                            (1)
                                                                        --------     --------          --------      --------
                                                                              88            1               108            22
                                                                        --------     --------          --------      --------
Extraordinary Item:
  Gain on extinguishment of liabilities                                      123          445               209           487
                                                                        --------     --------          --------      --------
Net income                                                              $    675     $    925          $    763      $  1,487
                                                                        ========     ========          ========      ========
Basic earnings per common share                            3
  Income from operations                                                $   0.02     $   0.02          $   0.02      $   0.04
  Discontinued operations                                               $      -     $      -          $      -      $      -
  Extraordinary item                                                    $   0.01     $   0.02          $   0.01      $   0.03
                                                                        --------     --------          --------      --------
  Net income                                                            $   0.03     $   0.04          $   0.03      $   0.07
                                                                        ========     ========          ========      ========
Diluted earnings per common share                          3
  Income from operations                                                $   0.02     $   0.02          $   0.02      $   0.04
  Discontinued operations                                               $      -     $      -          $      -      $      -
  Extraordinary item                                                    $      -     $   0.01          $   0.01      $   0.01
                                                                        --------     --------          --------      --------
  Net income                                                            $   0.02     $   0.03          $   0.03      $   0.05
                                                                        ========     ========          ========      ========

</TABLE>

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

<PAGE>4

                            Onsite Energy Corporation
                  Condensed Consolidated Statement of Cashflows
                 (Amounts in thousands except per share amounts)
                                   (Unaudited)


<TABLE>
<CAPTION>

                                                                           Six Months Ended
                                                                               December 31,
                                                                           2001        2000
                                                                         -------     --------
<S>                                                                     <C>        <C>
Cash flows from operating activities:
Net income                                                               $   763     $  1,487
Adjustments to reconcile net income to
  net cash provided by (used in) operating activities:
    Depreciation and amortization                                            122          129
    Compensation under variable incentive stock option plan                  (68)         (29)
    Gain on sale of discontinued operations                                  (68)
    Gain on sale of property and equipment                                                (30)
    Gain on extinguishment of debt                                          (209)        (487)

(Increase) decrease in:
    Cash-restricted                                                           81           (6)
    Accounts receivable                                                      857       (1,035)
    Deferred project costs                                                  (149)         (66)
    Capitalized project costs                                                 81           73
    Other assets                                                               1          (27)

Increase (decrease) in:
    Accounts payable                                                        (918)         345
    Billings in excess of costs and estimated earnings
      on uncompleted contracts                                               (10)         164
    Accrued expenses and other liabilities                                   (61)         (88)
    Deferred income                                                         (181)        (148)
                                                                         -------     --------
      Net cash provided by operating activities                              241          282
                                                                         -------     --------
Cash flows from investing activities:
    Purchases of property and equipment                                      (29)         (24)
    Proceeds from sale of discontinued operation                              85
    Loans to Stockholders                                                    (98)          50
                                                                         -------     --------
      Net provided (used) in investing activities                            (42)          26
                                                                         -------     --------
Cash flows from financing activities:
    Proceeds from issuance of common stock                                   147           48
    Proceeds from notes payable                                              334          136
    Repayment of notes payable                                               (92)        (451)
                                                                         -------     --------
      Net cash provided (used) in financing activities                       389         (267)
                                                                         -------     --------
Net increase in cash                                                         588           41

Cash, beginning of period                                                    113          226
                                                                         -------     --------
Cash, end of period                                                      $   701     $    267
                                                                         -------     --------

</TABLE>

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


<PAGE>5

                            ONSITE ENERGY CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1:   As  contemplated by the Securities and  Exchange Commission under Item
          310 of  Regulation  S-B, the  accompanying  financial  statements  and
          footnotes  have been  condensed  and do not  contain  all  disclosures
          required by generally accepted  accounting  principles and, therefore,
          should be read in  conjunction  with the Form 10-KSB for Onsite Energy
          Corporation  (the  "Company")  as of and for the year  ended  June 30,
          2001, and all other subsequent  filings. In the opinion of management,
          the   accompanying   unaudited   financial   statements   contain  all
          adjustments  (consisting of normal recurring adjustments) necessary to
          present  fairly its financial  position and results of its  operations
          for the interim period.

NOTE 2:   The consolidated  balance  sheets as of December 31, 2001 and June 30,
          2001, the consolidated  statements of operations for the three and six
          month periods ended December 31, 2001 and 2000,  and the  consolidated
          statements  of cash flows for the six months  ended  December 31, 2001
          and 2000,  represent the financial  position and results of operations
          of the Company. The results for the interim periods ended December 31,
          2001 and 2000 are not  necessarily  indicative of results that will be
          obtained in future periods.  Certain  reclassifications have been made
          to prior periods to conform to current period presentation.


            [The remainder of this page is intentionally left blank ]

<PAGE>6

NOTE 3:   Earnings  per share  calculations  for the three and six month periods
          ended December 31, 2001 and December 31, 2000, are as follows:

                 (Amounts in thousands except per share amounts)


<TABLE>
<CAPTION>

                                                         Three Months Ended December 31,          Six Months Ended December 31,
                                                              2001               2000                 2001                2000
                                                            --------           --------             --------            --------
<S>                                                     <C>                  <C>                  <C>                 <C>
                        BASIC EARNINGS

Net income                                                  $    675           $    925             $    763            $  1,487
Less: Preferred stock dividends                                  (81)               (81)                (162)               (162)
                                                            --------           --------             --------            --------
Net income allocated to common shareholders                 $    594           $    844             $    601            $  1,325
                                                            ========           ========             ========            ========
Weighted average number of common shares                      21,648             19,531               21,405              19,114
                                                            ========           ========             ========            ========
Basic earnings per common share                             $   0.03           $   0.04             $   0.03            $   0.07
                                                            ========           ========             ========            ========

                       DILUTED EARNINGS

Net income available to common shareholders                 $    594           $    844             $    601            $  1,325
Preferred stock  dividends                                        81                 81                  162                 162
                                                            --------           --------             --------            --------
Net income available to common shareholders plus
  assumed conversion                                        $    675           $    925             $    763            $  1,487
                                                            ========           ========             ========            ========
Weighted average number of common shares                      21,648             19,531               21,405              19,114
Common stock equivalent shares representing
  assumed conversions of preferred stock                       8,246              8,246                8,246               8,246
Common stock equivalent shares representing
  shares issuable upon exercise of stock options                 244                530                  519                 435
                                                            --------           --------             --------            --------
Weighted average number of shares used in
  calculation of diluted earnings per common share            30,189             28,307               30,189              27,795
                                                            ========           ========             ========            ========
Diluted earnings per common share                           $   0.02           $   0.03             $   0.03            $   0.05
                                                            ========           ========             ========            ========

</TABLE>


NOTE 4:   In August 2001, two officers of the Company elected to exercise  their
          options to purchase shares of the Company's Class A Common Stock under
          the Company's  incentive  stock option plan. A total of  approximately
          1,000,000  shares  were  purchased  in  this  exercise.  The  officers
          purchased  the shares by  executing  promissory  notes to the  Company
          totaling $101,000.  The notes are secured by the stock purchased under
          the  exercise,  provide for  interest  at 6 percent per annum  payable
          annually,  and  mature  upon sale of the  exercised  option  shares or
          August 1, 2006,  whichever  occurs earlier and have been recorded as a
          reduction of stockholders' equity.

NOTE 5:   In December 2001, the Company sold substantially  all of the operating
          assets  in  Onsite  Energy  Services,  Inc.,  ("OES")  a  wholly-owned
          subsidiary.   The  sale  effectively  ceased  all  operations  in  the
          subsidiary  for the  Company.  The  Company  acquired  OES,  which was
          previously  named Onsite Business  Services,  Inc. and Westar Business
          Services,  Inc., in October 1997. Since February 2000, OES has focused
          primarily on providing  industrial water services.  This  discontinued
          operation  generated  $41,000 in  operating  income for the six months
          ended December 31, 2001. The Company recognized a gain of $68,000 from
          the sale of OES's assets.  The assets of OES were sold to an unrelated
          entity for $125,000.  This sale was  accounted for in accordance  with
          SFAS No. 144.

<PAGE>7


Item 2. Management's Discussion and Analysis or Plan of Operation.

Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995. With the exception of historical facts
stated  herein,  the matters  discussed  in this  quarterly  report are "forward
looking" statements that involve risks and uncertainties that could cause actual
results to differ  materially  from  projected  results.  The "forward  looking"
statements  contained  herein  are  cross-referenced  to  this  paragraph.  Such
"forward  looking"  statements  include,  but are not  necessarily  limited  to,
statements  regarding  anticipated  levels of future  revenue and earnings  from
operations of the Company, projected costs and expenses related to the Company's
energy  services  agreements,  and the  availability  of future  debt and equity
capital on  commercially  reasonable  terms.  Factors  that could  cause  actual
results  to  differ  materially  include,  in  addition  to  the  other  factors
identified  in this  report,  the cyclical  and  volatile  price of energy,  the
inability to continue to contract  sufficient  customers to replace contracts as
they become completed,  unanticipated  delays in the approval of proposed energy
efficiency  measures by the  Company's  customers,  delays in the receipt of, or
failure to receive  necessary  governmental or utility permits or approvals,  or
the renewals thereof,  risks and uncertainties  relating to general economic and
political conditions, both domestically and internationally,  changes in the law
and regulations governing the Company's activities as an energy services company
and the  activities  of the nation's  regulators  and public  utilities  seeking
energy  efficiency as a cost  effective  alternative to  constructing  new power
generation  facilities,  results of project specific and company working capital
and financing efforts and market conditions,  and other risk factors detailed in
the Company's  Securities  and Exchange  Commission  filings  including the risk
factors  set forth in the  Company's  Form 10-KSB for the fiscal year ended June
30,  2001.  Readers of this report are  cautioned  not to put undue  reliance on
"forward looking"  statements which are, by their nature,  uncertain as reliable
indicators of future performance. The Company disclaims any intent or obligation
to publicly update these "forward  looking"  statements,  whether as a result of
new information, future events or otherwise.

Background

The Company is an energy services company ("ESCO") that assists energy customers
in lowering their energy costs by developing,  engineering,  installing,  owning
and operating  efficient,  environmentally  sound energy  efficiency  and onsite
generation  projects,  and  advising  customers on the  purchasing  of energy in
deregulating  energy  markets.  The Company  offers its services to  industrial,
commercial and institutional  customers. By combining development,  engineering,
analysis,  and project and financial  management  skills, the Company provides a
comprehensive package of services,  ranging from feasibility  assessment through
construction and operation for projects incorporating  industrial  refrigeration
and process improvements,  energy efficient lighting, energy management systems,
heating,  ventilation and air  conditioning  (HVAC)  upgrades,  cogeneration and
other energy efficiency measures. In addition, the Company offers bill auditing,
tariff  analysis,  transmission  and  distribution  analysis and  upgrades,  and
measurement and verification  ("M&V") services.  Through its subsidiary,  Energy
Nexus Group, Inc.  ("ENG"),  the Company also provides  professional  consulting
services in the areas of market and technology assessments,  business strategies
and public policy analysis.  It is the Company's  mission to help customers save
money through independent energy solutions.

Unless the context indicates  otherwise,  reference to the Company shall include
all of its wholly-owned subsidiaries.

<PAGE>8

As of June 30, 2001, the Company's auditors issued a qualified opinion regarding
the Company's  ability to continue as a going concern.  The going concern issues
are primarily the result of operating losses in its fiscal years ending June 30,
1999 and 2000, negative working capital and negative  shareholders'  equity. See
the  Liquidity  and  Capital  Resources  discussion  below  for  details  of the
Company's continuing plan for dealing with these issues.

On  July  1,  2001,  the  Company  activated  ENG to  facilitate  the  Company's
continuing consulting services business.  The Company currently owns 100 percent
of the issued and outstanding  common stock of ENG, but has agreed to award 12.5
percent  to  employees  of ENG  subject  to  certain  vesting,  performance  and
continued employment  requirements.  As of July 1, 2001, the Company transferred
all of its consulting business unit personnel and related consulting projects to
ENG.

In December 2001, the Company sold  substantially all of the operating assets of
OES  which  effectively  ceased  all  operations.  This  discontinued  operation
generated  $41,000 in  operating  income for the six months  ended  December 31,
2001. The Company  recognized a gain of $68,000 from the sale of the assets (see
NOTE 5 of the Financial Statements).

On June 30, 1998,  the Company  acquired the assets and certain  liabilities  of
SYCOM Enterprises,  LLC ("SYCOM LLC"), through a newly-formed subsidiary,  SYCOM
ONSITE  Corporation  ("SO  Corporation")  executed  a  Sale  and  Noncompetition
Agreement  with  SYCOM  Corporation.  SYCOM LLC was also an ESCO with  customers
primarily in the mid-Atlantic area of the United States.  Since the close of the
SYCOM transaction in June 1998, Onsite  experienced  significant losses and as a
result,  terminated the Sale and Noncompetition Agreement with SYCOM Corporation
effective  June 30, 2000.  The  Company,  however,  retained the project  assets
purchased from SYCOM LLC in June 1998 as well as projects  developed  after that
date. The Company continues to maintain its subsidiary, SO Corporation,  for the
purpose  of  completing  a  long-term  construction  project  as well as for the
management  of other  revenue  generating  activities  and to meet  its  ongoing
commitments for M&V for projects primarily located on the east coast. Efforts on
behalf of SO  Corporation  to develop any new east coast  business  ceased as of
June 30, 2000.

Since October 15, 2000, as a result of the Company's inability to issue dividend
payments because of its stockholders'  deficit,  the Company has been in default
on its  quarterly  requirement  to pay  dividends  on the  Series C  Convertible
Preferred Stock (the "Series C Stock"). Under the Certificate of Designation for
the Series C Stock if, at any time, four or more quarterly dividends, whether or
not consecutive, on the Series C Stock are in default, in whole, or in part, the
holders  of the  Series C Stock are  entitled  to elect the  smallest  number of
directors  as would  constitute  a  majority  of the Board of  Directors  of the
Company and the  holders of the  Company's  Class A Common  Stock as a class are
entitled to elect the remaining directors.  Westar Industries,  Inc. (aka Westar
Capital, Inc.) ("Westar"),  owns all of the Series C Stock. Additionally,  under
the October  1997 Stock  Subscription  Agreement  entered into by Westar and the
Company,  Westar agreed for a period of five years to limit its equity ownership
of the  Company to 45 percent  of the  outstanding  shares of the Class A Common
Stock on a fully diluted basis and to not take certain other actions  related to
controlling  or  attempting  to  control  the  Company  unless it  receives  the
Company's  permission  via the majority  vote of the  directors of the Company's
Board of Directors who are not directors  designated by Westar or are affiliates
of Westar.  However,  if, at any time,  Westar exercises its rights to elect the
majority of the Board of  Directors  because four or more  quarterly  dividends,
whether or not consecutive, on the Series C Stock are in default, in whole or in
part,  all directors are entitled to vote on such  ownership  issue and not just
the non-Westar designated directors.  The Company remains delinquent on the July
15,  1999,  dividend  (payable  in 15,823  shares  of Series C Stock,  valued at

<PAGE>9

$1,661),  and cash dividends of $648,000  payable from April 15, 2000 to January
15, 2002.  The total cash value of dividends in arrears as of December 31, 2001,
was $567,000. While the Company has been unable to pay nine quarterly dividends,
as of the date of this  quarterly  report,  Westar has not  exercised its right,
discussed above, to elect a majority of the Board of Directors.

The Company has gone  through  significant  changes over the past few years that
involved aggressive growth through acquisition and the subsequent divestiture or
ceased operations of nearly all of the added/created subsidiaries.  As a result,
the Company has experienced  substantial  reductions in revenues,  cost of sales
and selling,  general and  administrative  ("SG&A") expenses since July 2000 but
has been profitable  during that period.  The Company has focused itself back on
its core business of being an energy services  company with primary  emphasis in
the western U.S.

Results of Operations

Three  months  ended  December  31,  2001,  compared to the three  months  ended
December 31, 2001

Revenues for the three month period ended  December 31, 2001,  were  $3,060,000,
compared to  $3,440,000  for the three month period  ended  December 31, 2000, a
decrease  of  $380,000,  or 11  percent.  This  decrease  was due  primarily  to
decreased  energy  project  installation  activity.  Cost of sales for the three
months ended December 31, 2001,  was  $1,606,000  compared to $2,286,000 for the
three months ended December 31, 2000, a decrease of $680,000, or 30 percent. The
decrease in activity relates  primarily to the general  reduction in projects in
the Company's east coast  operations.  The Company still has  approximately  two
years to complete the remaining construction project at this operation.

Gross profit for the three months ended  December 31, 2001,  was  $1,454,000 (48
percent of revenues),  compared to  $1,154,000  (34 percent of revenues) for the
three months ended December 31, 2000, an increase of $300,000.  This increase in
gross  margins was  primarily  attributable  to the one-time sale in the quarter
ended December 31, 2001, of  approximately  $700,000 in rights to receive future
utility incentive payments under certain energy efficiency projects owned by the
Company. These revenues had no direct costs associated with them.

SG&A  expense was  $1,021,000  for the three  months  ended  December  31, 2001,
compared  to  $829,000  for the same three  months  last year,  an  increase  of
$192,000.  The increase is primarily  attributable to additional personnel hired
to expand the California and consulting operations of the Company.

Compensation under variable incentive stock option plan was negative $63,000 for
the three months ended December 31, 2001,  compared to negative $206,000 for the
same period in the prior year. In accordance with APB No. 25, certain  re-priced
stock options have been accounted for as a variable  stock option plan.  Factors
which  affect  the  amount of expense  to be  recognized  include  the number of
re-priced  vested  options,  and the change in the market value of the Company's
stock.  During the three month period ended  December 31, 2001, the price of the
Company's stock decreased by  approximately  $.05 compared to $.12 for the three
months ended December 31, 2000. The decrease was also  attributable  to exercise
of  options  subject  to  variable  accounting  in  August  of 2001  by  certain
executives.

Other  expense was $18,000 for the three month period  ended  December 31, 2001,
compared to net other expense of $28,000 for the same three months in 2000.

<PAGE>10

Net income from  continuing  operations  for the three months ended December 31,
2001, was $446,000 compared to $479,000 for the same period in 2000.

Income from operations of discontinued  component was $89,000 and $1,000 for the
three months ended  December  31, 2001 and 2000,  respectively.  This result was
associated with the sale of  substantially  all of the assets of OES in December
2001.  Further  details  of the sale are  discussed  in NOTE 5 of the  financial
statements contained herein.

Gain from  extinguishment  of  liabilities at less than face value for the three
months ended December 31, 2001,  was $123,000  compared to $445,000 for the same
period in 2000.  The Company is continuing in its efforts to retire its past due
trade debt.  The decrease is due primarily to the settlement in 2000 of $437,000
with one major account.

Net income for the three months ended December 31, 2001, was $675,000,  or $0.02
per fully  diluted  share.  Net income for the three months  ended  December 31,
2000, was $925,000, or $0.03 per fully diluted share. The decrease was primarily
due to reductions in the amount of  liabilities  extinguished  at less than face
value.

Six months ended  December 31, 2001,  compared to the six months ended  December
31, 2000

Revenues  for the six month period ended  December  31, 2001,  were  $6,489,000,
compared to  $6,254,000  for the six month  period ended  December 31, 2000,  an
increase of $235,000, or 4 percent. This increase was due primarily to increased
incentive revenues  associated with the sale of two utility incentive  contracts
in December  2001.  Installation  activity  associated  with  energy  efficiency
projects  remained  approximately  constant overall between the six months ended
December 31, 2001 and 2000.

Cost of sales  for the six  months  ended  December  31,  2001,  was  $4,138,000
compared to $3,590,000  for the six months ended  December 31, 2000, an increase
of $548,000,  or 15 percent.  Gross profit for the six months ended December 31,
2001,  was  $2,351,000  (36 percent of  revenues),  compared to  $2,664,000  (43
percent of revenues)  for the six months ended  December 31, 2000, a decrease of
$313,000.  This  decline  was  primarily  attributable  to lower  gross  margins
achieved  on  a  large,   cost-plus  energy  efficiency  project  with  a  major
municipality.  These lower margins were partially offset by an increase in sales
in rights to receive  future  utility  incentive  payments  under certain energy
efficiency  projects owned by the Company,  which had no direct costs associated
with them.

SG&A expense was $1,896,000 for the six months ended December 31, 2001, compared
to $1,642,000  for the same six months last year,  an increase of $254,000.  The
increase is primarily  attributable  to additional  personnel  hired to grow the
California and consulting operations of the Company.

Compensation under variable incentive stock option plan was negative $68,000 for
the six months ended  December 31,  2001,  compared to negative  $29,000 for the
same period in the prior year. In accordance with APB No. 25, certain  re-priced
stock options have been accounted for as a variable  stock option plan.  Factors
which  affect  the  amount of expense  to be  recognized  include  the number of
re-priced  vested  options,  and the change in the market value of the Company's
stock.  During the six month periods ended  December 31, 2001,  the price of the
Company's  stock  decreased by  approximately  $.06 compared to $.05 for the six
months ended December 31, 2000. The decrease was also  attributable  to exercise
of options subject to variable  accounting in August 2001 by certain executives.

<PAGE>11

Other  expense was $56,000 for the six month  period  ended  December  31, 2001,
compared to net other expense of $44,000 for the same six months in 2000.

Net income from  continuing  operations  for the six months  ended  December 31,
2001, was $445,000 compared to $978,000 for the same period in 2000. Lower gross
margin rates and  increased  SG&A  expense as  discussed  above were the primary
reason for this result.

Income from discontinued  operations was $109,000 and $22,000 for the six months
ended  December 31, 2001 and 2000,  respectively.  This result was in connection
with the sale of  substantially  all of the  assets of OES,  which  occurred  in
December  2001.  Further  details  of the  sale are  discussed  in NOTE 5 of the
financial statements contained herein.

Gain from  extinguishment  of  liabilities  at less than face  value for the six
months ended December 31, 2001,  was $209,000  compared to $487,000 for the same
period in 2000.  The Company is continuing in its efforts to retire its past due
trade debt.  The decrease is due primarily to the  settlement of $437,000 in the
three  months  ended  December  31,  2000,  with a major trade  account  general
reduction in the amount of such debt remaining to be settled.

Net income for the six months ended December 31, 2001, was $763,000, or $.03 per
fully diluted share.  Net income for the six months ended December 31, 2000, was
$1,487,000,  or $.05 per fully diluted share.  The decrease  resulted  primarily
from lower  operating  income  achieved  for the period and a reduction in gains
from extinguishment of debt discussed above.

Liquidity and Capital Resources

The Company's cash and cash  equivalents  were $701,000 as of December 31, 2001,
compared to $113,000 at June 30, 2001.  Working capital was negative  $4,788,000
as of December 31, 2001,  compared to negative  $5,619,000  at June 30, 2001, an
improvement in negative working capital of $831,000 over the last six months.

Cash flows  provided by  operating  activities  was  $241,000 for the six months
ended December 31, 2001,  compared to $282,000 for the same six-month  period in
the prior year. The decrease was primarily  attributable  to reductions in trade
accounts payable in the current period.

Cash flows used in investing activities was $42,000 compared to cash provided by
investing  activities of $26,000 for the six months ended  December 31, 2001 and
2000,  respectively.  Capital spending remained  approximately constant overall.
The Company also  realized  $85,000 in cash proceeds from the sale of the assets
of OES, a discontinued operation (See NOTE 5 of the financial statements).

Cash flows  provided by  financing  activities  was  $389,000 for the six months
ended December 31, 2001, compared to cash flows used in financing  activities of
$267,000  for the same six month  period  last year.  For the six  months  ended
December  31,  2001,  cash was  provided  primarily  through  a  settlement  and
conversion of approximately  $290,000 in trade accounts payable into a long-term
note.

The Company  suffered losses from operations of $6,637,000 and $6,477,000 in the
fiscal  years  ended  June 30,  2000 and 1999,  respectively.  As a result,  the
Company had a negative working capital of $7,703,629 and a stockholders' deficit

<PAGE>12

of $8,314,000 as of June 30, 2000.  Through the fiscal year ended June 30, 2001,
the Company was able to achieve net income of  $1,657,000,  reduce its  negative
working  capital  to  $5,619,000,   and  reduce  its  stockholders'  deficit  to
$5,494,000.  The Company has continued to reduce its stockholders' deficit by an
additional $744,000 to $4,750,000 during the six months ended December 31, 2001.
Management  achieved  this  improvement  primarily  by focusing  its business in
profitable operations in the western U.S.,  liquidating rights to future utility
incentive payments for cash and negotiating reductions of trade debt.

The Company  continues to pursue strategies to continue to improve its financial
position  including  developing  new  business  and  minimizing  cost as well as
actions selling or financing its remaining cash flow entitlements to improve the
Company's ability to continue as a going concern.  As a result,  the Company has
made significant progress toward improving its financial position. At this time,
the Company is relying on sales of its services  and products to generate  cash.
Historically,  the Company  has  operated at a loss and has had to rely on sales
and trade payables to finance its  operations.  More  recently,  the Company has
generated  cash for its  operations.  On the  event  the  Company  is  unable to
continue  earning net income to finance  its  operations,  the  Company  will be
required  to seek  other  sources of  financing  and  continue  to rely on trade
payables  to finance its  operations.  Future  cash  requirements  depend on the
Company's profitability,  its ability to manage working capital requirements and
its rate of growth.  Any  adverse  changes in  Company's  ability to continue to
generate cash flows from these continuing efforts will have a detrimental affect
on the Company's  liquidity and the Company will be reliant on the  availability
of alternative sources of financing to continue operations.

Seasonality and Inflation.  Management does not believe that the business of the
Company is affected by seasonality or inflation.

Impact of Recently Issued Standards.  In June 2001, the FASB issued SFAS No. 142
"Goodwill and Other Intangible  Assets." This statement addresses how intangible
assets that are acquired  individually or with a group of other assets should be
accounted for upon their acquisition.  The statement also addresses how goodwill
and other  intangible  assets  should  be  accounted  for  after  they have been
initially  recognized in the financial  statements.  The Company will adopt SFAS
No. 142, in fiscal year ending June 30,  2002.  The  adoption of SFAS No. 142 is
not expected to have a material  effect on the Company's  financial  position or
results of operations.

In October 2001, the FASB issued SFAS No. 144  "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement  establishes the accounting model
for  long-lived  assets to be disposed of by sale and applies to all  long-lived
assets,  including  discontinued  operations.  This new statement  requires that
those  long-lived  assets be measured  at the lower of  carrying  amount or fair
value  less  cost to sell,  whether  reported  in  continuing  operations  or in
discontinued  operations.  Therefore,  discontinued operations will no longer be
measured at net realizable  value or include  amounts for operating  losses that
have not yet  occurred.  The  Company  adopted  SFAS No. 144 during the  quarter
beginning  July 1,  2001  (See  NOTE 5).  The  adoption  of SFAS No.  144 is not
expected  to have a  material  effect on the  Company's  financial  position  or
results of operations.

<PAGE>13

Part II - Other Information

Item 1. Legal Proceedings.

As  previously  disclosed by the Company,  in October  2001,  REEP Onsite,  Inc.
("REEP  Onsite"),  settled  an action  filed in June  2000,  by  Planergy,  Inc.
(Superior  Court of New Jersey,  Law  Division,  Somerset  County)  against REEP
Onsite,  the  Company  and other  parties,  including  another of the  Company's
subsidiaries.  The settlement  agreement was executed in the quarter. The action
sought  payment of monies  ($94,428)  allegedly  owed for equipment and services
supplied by Planergy, Inc., plus interest and attorneys' fees.

Additionally, as previously disclosed by the Company, General Accident Insurance
Company of  America  ("General  Accident")  filed a motion in August  2001,  for
attorneys' fees against the Company and other  defendants,  including D. Falasca
Plumbing,  Heating, Cooling, Inc. ("Falasca") (Superior Court of New Jersey, Law
Division,  Atlantic County),  for fees allegedly incurred by General Accident in
prior actions filed by General  Accident (in April 2000) against the Company and
Falasca that seek  indemnification  allegedly owed under an indemnity  agreement
executed by the Company,  plus interest,  costs and other damages related to one
of the Company's  projects.  In November  2001,  General  Accident's  motion was
granted for  $137,829  after a reduction in legal fees  claimed,  which has been
accrued by the Company. The Company continues to try to work with the parties to
settle this matter; however, no settlement agreement has been reached.

Item 2. Changes in Securities and Use of Proceeds

On November 20, 2001 and November 29, 2001,  the Company  contributed a total of
160,948  shares of common stock of the Company to the Onsite  Energy 401(k) Plan
(the  "401(k)  Plan").  The shares of common stock were valued as of the closing
date of the prior quarter, September 30, 2001, at $0.155 per share. The issuance
of these  shares of common  stock were made by the Company in reliance  upon the
exemption from registration provided under Section 4(2) of the Securities Act of
1933 in a private offering.

Item 3. Defaults upon Senior Securities

The Company is required to pay quarterly  dividends on its Series C Stock. As of
the date of this report, the Company has not paid nine quarterly dividends.  The
total amount due as of the date of this report is  $648,000.  See Part I, Item 2
Management's   Discussion   and  Analysis  or  Plan  of  Operation  for  further
discussion.

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

The  Annual  Meeting  of  Stockholders  of the  Company  was  held in  Carlsbad,
California,  on December  6, 2001.  At the  meeting,  the  stockholders  elected
Messrs.  Charles C.  McGettigan  and  Richard T.  Sperberg as  directors  of the
Company to hold office until the 2003 Annual Meeting of Stockholders,  and until
their successors are elected and qualified.  The stockholders  also (i) approved
the adoption of the Company's 2001 Equity  Incentive Plan; and (ii) ratified the
selection of Swenson Advisors, LLP, as the Company's independent auditors.

<PAGE>14

The following is a summary of the results of the meeting:

PROPOSAL NO. 1 - ELECTION OF DIRECTORS

<TABLE>
<CAPTION>

Name of Director                   Result          Votes For     Votes Withheld       Total
------------------------------ ---------------- ---------------- ---------------- ---------------
<S>                             <C>            <C>               <C>               <C>
Charles C. McGettigan              ELECTED        26,535,178          52,322         26,587,500

Richard T. Sperberg                ELECTED        22,809,178       3,778,322         26,587,500

</TABLE>

PROPOSAL NO. 2 - APPROVAL OF ADOPTION OF 2001 EQUITY INCENTIVE PLAN

<TABLE>
<CAPTION>

Proposal/Result                   Votes For      Votes Against   Votes Withheld       Total
------------------------------ ---------------- ---------------- ---------------- ---------------

<S>                            <C>              <C>               <C>              <C>
Adoption of 2001 Equity           15,065,474       7,233,426          6,318          22,305,218
Incentive Plan/APPROVED

</TABLE>

PROPOSAL NO. 3 - RATIFICATION OF SELECTION OF SWENSON ADVISORS, LLP, AS
INDEPENDENT AUDITORS

<TABLE>
<CAPTION>

Proposal/Result                    Votes For      Votes Against   Votes Withheld       Total
------------------------------ ----------------- --------------- ---------------- ---------------

<S>                            <C>               <C>               <C>            <C>
Section of Swenson Advisors,      26,554,034        18,413            15,053         26,587,500
LLP, as independent auditors/
RATIFIED

</TABLE>

Item 5. Other Information - Not Applicable

Item 6. Exhibits and Reports on Form 8-K

Exhibits. None.

Reports on Form 8-K. On October 19, 2001, the Company filed a report on Form 8-K
with the Securities and Exchange Commission. The filing was in connection with a
change in the Company's  independent  public accountants on October 15, 2001. On
November 1, 2001,  the Company filed a Form 8-K/A-1 to include a letter from the
Company's former independent public  accountants.  No financial  statements were
filed with the report.

<PAGE>15

                                   SIGNATURES

In  accordance  with  the  requirements  of the  Securities  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.


                                             ONSITE ENERGY CORPORATION



Date:   February 11, 2002                    By: /s/  Richard T. Sperberg
                                                 Richard T. Sperberg
                                                 Chief Executive Officer
                                                 (Principal Executive Officer)


Date:   February 11, 2002                    By: /s/  Paul E. Blevins
                                                 Paul E. Blevins
                                                 Chief Financial Officer
                                                 (Principal Accounting Officer)