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, 1998.

        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 jurisidiction of                   (I.R.S. Employer 
 incorporation or organization)                   Identification No.) 


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


Issuer's telephone number, including area code:  (760) 931-2400


Check  whether the 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    No X

The number of Class A common stock, $0.001 par value, outstanding as of February
11, 1999 is 18,540,342.

<PAGE>2


                            Onsite Energy Corporation
                      Condensed Consolidated Balance Sheet
                                December 31, 1998
                                   (Unaudited)


<TABLE>
<CAPTION>

                                     ASSETS

<S>                                                                              <C>
Current Assets:
    Cash                                                                        $     628,594
    Cash-restricted                                                                    82,266
    Accounts receivable, net of allowance for doubtful                       
      accounts of $13,000                                                           5,752,267
    Inventory                                                                         187,338
    Capitalized Project Costs                                                          75,575
    Costs and estimated earnings in excess of billings
      on uncompleted contracts                                                      1,579,048
    Other current assets                                                              465,239
                                                                                -------------
           TOTAL CURRENT ASSETS                                                     8,770,327

    Cash-restricted                                                                    75,570
    Property and equipment, net of accumulated depreciation 
      and amortization                                                              1,711,152
    Excess of purchase price over net assets acquired, net of 
      amortization of $265,000                                                      3,312,523
    Other assets                                                                       58,186
                                                                                -------------
           TOTAL ASSETS                                                         $  13,927,758
                                                                                =============

                      LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
    Notes payable - related parties                                             $     273,748
    Notes payable                                                                   1,419,127
    Accounts payable                                                                6,179,000
    Billings in excess of costs and estimated earnings                       
      on uncompleted contracts                                                      4,816,441
    Accrued expenses and other liabilities                                          1,437,288
                                                                                -------------
          TOTAL CURRENT LIABILITIES                                                14,125,604

Long-Term Liabilities:
    Accrued future operation and maintenance costs
      associated with energy services agreements                                      465,359
                                                                                -------------

          TOTAL LIABILITIES                                                        14,590,963
                                                                                -------------

Commitments and contingencies

Shareholders' Deficit:
     Preferred Stock, Series C, 842,500 shares authorized,
        423,354 issued and outstanding (Aggregate $2,066,400                 
        liquidation preference)                                                           423
     Preferred Stock, Series D, 157,500 shares authorized,
        issued and outstanding and held in escrow                                           -
    Common Stock, $.001 par value, 24,000,000 shares authorized:
       Class A common stock, 23,999,000 shares
           authorized, 18,500,510 issued and outstanding                               18,500
       Class B common stock, 1,000 shares authorized,
           none issued and outstanding                                                      -
    Additional paid-in capital                                                     24,408,716
    Notes receivable - stockholders                                                (2,482,755)
    Accumulated deficit                                                           (22,608,089)
                                                                                -------------
         TOTAL SHAREHOLDERS' DEFICIT                                                 (663,205)
                                                                                -------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT                                     $  13,927,758
                                                                                =============

</TABLE>


The accompanying notes are an integral part of the financial statements

<PAGE>3


                            Onsite Energy Corporation
                 Condensed Consolidated Statements of Operations
                                   (Unaudited)



<TABLE>
<CAPTION>


                                             Three Months Ended December 31,       Six Months Ended December 31,
                                                 1998              1997                1998              1997
                                             --------------   ----------------    ---------------   ---------------

<S>                                          <C>                <C>                <C>               <C>        
Revenues                                     $   9,320,493      $   3,303,578      $  18,639,043     $   5,541,383

Cost of sales                                    7,757,337          2,555,071         15,650,366         4,141,865
                                             -------------      -------------      -------------     -------------
    Gross margin                                 1,563,156            748,507          2,988,677         1,399,518

Selling, general,
    and administrative expenses                  2,756,837            944,254          5,448,297         1,441,262
Depreciation and amortization expense              265,002            158,147            555,623           263,924
                                             -------------      -------------      -------------     -------------

     Operating loss                             (1,458,683)          (353,894)        (3,015,243)         (305,668)
                                             -------------      -------------      -------------     -------------

Other income (expense):
   Interest expense                                (76,440)                 -           (168,311)           (8,588)
   Interest income                                  28,125              9,271             66,049            13,374
   Other expense                                         -             (5,559)                 -            (5,559)
                                             -------------      -------------      -------------     -------------

     Total other income (expense)                  (48,315)             3,712           (102,262)             (773)
                                             -------------      -------------      -------------     -------------

Net loss                                     $  (1,506,998)     $    (350,182)     $  (3,117,505)    $    (306,441)
                                             =============      =============      =============     =============
 

Net loss allocated to common shareholders    $  (1,557,366)     $    (350,182)     $  (3,193,248)    $    (306,441)
                                             =============      =============      =============     =============

Basic and diluted loss per common share      $       (0.08)     $       (0.03)     $       (0.17)    $       (0.03)
                                             =============      =============      =============     =============
                                                                                 
Weighted average shares outstanding             18,488,514         13,519,572         18,381,886        12,231,872
                                             =============      =============      =============     =============

</TABLE>


The accompanying notes are an integral part of the financial statements

<PAGE>4

                           Onsite Energy Corporation
                  Condensed Consolidated Statements of Cashflows


<TABLE>
<CAPTION>


                                                                             Six Months Ended
                                                                               December 31,
                                                                          1998              1997
                                                                     ----------------  ---------------
<S>                                                                  <C>               <C>
 Cash flows from operating activities:

 Net loss                                                             $   (3,117,505)   $    (306,441)

 Adjustments to reconcile net loss to net cash
        used in operating activities:
        Amortization of goodwill                                             251,195          200,000
        Amortization of acquired contract costs                              121,643                -
        Provision for bad debts                                               90,000                -
        Depreciation                                                         304,428           63,924
 Change in operating assets and liabilities:
        Accounts receivable                                               (2,323,397)      (1,235,923)
        Billings related to costs and estimated earnings 
          on uncompleted contracts                                         1,293,554         (331,264)
        Inventory                                                             (9,123)               -
        Other assets                                                           7,382         (116,753)
        Cash-restricted                                                            -           41,252
        Accounts payable                                                   2,798,729        1,054,863
        Accrued expenses and other liabilities                               (71,272)               -
                                                                      --------------    -------------

         Net cash used in operating activities                              (654,366)        (630,342)
                                                                      --------------    -------------
 Cash flows from investing activities:
        Purchases of property and equipment                                  (57,402)        (123,190)
        Loans to stockholders                                             (1,147,537)               -
                                                                      --------------    -------------
         Net cash used in investing activities                            (1,204,939)        (123,190)

 Cash flows from financing activities:
        Proceeds from exercise of stock options                               20,227            4,964
        Proceeds from issuance of stock                                    1,000,000        1,947,287
        Repayment of notes payable-related party                            (194,581)         (83,104)
        Payments on borrowings, net                                         (430,753)               -
                                                                      --------------    -------------
         Net cash provided by financing activities                           394,893        1,869,147
                                                                      --------------    -------------

 Net increase (decrease) in cash                                          (1,464,412)       1,115,615

 Cash, beginning of year                                                   2,093,006          526,894
                                                                      --------------    -------------

 Cash, end of period                                                  $      628,594    $   1,642,509
                                                                      ==============    =============

</TABLE>


The accompanying notes are an integral part of the 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  dba ONSITE
                      SYCOM Energy  Corporation  (the  "Company")  as of and for
                      the  year  ended  June  30,   1998.   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 sheet as of December 31, 1998,
                      and the  consolidated  statements of  operations  and cash
                      flows for the three and six months ended December 31, 1998
                      and 1997,  represent the financial position and results of
                      operations of the Company.

        NOTE 3:       Earnings per share  calculations  for the three and six
                      month  periods  ended  December  31,  1998 and 1997 are as
                      follows:


<TABLE>
<CAPTION>

                                                       Three Months                     Six Months
                                                    Ended December 31,               Ended December 31,
                                                  1998              1997           1998             1997
                                             -------------     -------------   -------------    -------------

<S>                                          <C>               <C>             <C>              <C>          
 Net Loss                                    $ (1,506,998)     $   (350,182)   $ (3,117,505)    $   (306,441)
 Less:  Preferred stock dividends                 (50,368)                -         (75,743)               -
                                             -------------     ------------    ------------     ------------

 Net loss allocated to common shareholders   $ (1,557,366)     $   (350,182)   $ (3,193,248)    $   (306,441)
                                             ============      ============    ============     ============

 Basic and diluted loss per common share     $      (0.08)     $      (0.03)   $      (0.17)    $      (0.03)
                                             ============      ============    ============     ============

 Weighted average shares outstanding           18,488,514        13,519,572      18,381,886       12,231,872
                                             ============      ============    ============     ============

</TABLE>

        NOTE 4:       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

<PAGE>6


                      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,  ability to complete
                      contracts  within  budgets,  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  regulators   and  public   utilities
                      regarding  energy  efficiency  and  other  related  energy
                      policies,   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  10KSB  for the  fiscal  year  ended  June 30,  1998.
                      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.

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

Background

The Company is an energy  efficiency  services  company  (ESCO)  that  develops,
designs,  constructs, owns and operates comprehensive energy efficiency projects
and also assists  customers in reducing  the cost of purchased  electricity  and
fuel. The Company also offers  professional  consulting services in the areas of
market assessment,  business strategies,  public policy analysis,  environmental
studies  and  utility  deregulation.  It is the  Company's  mission  to save its
customers money and improve the quality of the environment  through  independent
energy solutions.

In October 1997, the Company acquired Westar Business Services,  Inc., which was
renamed  Onsite  Business  Services,  Inc.  ("OBS").  OBS provides  high voltage
electrical  construction and engineering services and high purity water services
primarily in the states of Kansas, Missouri and Oklahoma.

In February  1998,  OBS acquired the  operating  assets of  Mid-States  Armature
Works, Inc. through a newly formed subsidiary,  Onsite Mid-States, Inc. ("OMS").
OMS  provides  specialized  medium  and  high  voltage  electrical  fabrication,
installation, maintenance and repair services to municipal utility customers and
others,  primarily  in the  states  of  Kansas,  Nebraska,  Missouri,  Iowa  and
Oklahoma.

In April 1998,  the Company  formed Onsite Energy de Panama,  S.A., a Panamanian
corporation, to facilitate the development and acquisition of potential projects
in Panama and other Latin American countries.


<PAGE>7


In June 1998, the Company acquired Lighting Technology  Services,  Inc. ("LTS").
LTS  provides  energy  efficiency  projects  through  high  efficiency  lighting
retrofits and lighting  controls either  independently  or as a subcontractor to
the  Company  and  other  energy  services   companies   primarily  in  Southern
California.

On June 30, 1998,  the Company  acquired the assets and certain  liabilities  of
SYCOM  Enterprises,  LLC,  ("SYCOM")  through a newly-formed  subsidiary,  SYCOM
ONSITE  Corporation ("SO  Corporation").  SYCOM was also an ESCO, with customers
primarily in the Mid-Atlantic region of the United States.

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

Results of Operations

Six months ended December 31, 1998 compared to the six months ended December 31,
1997

Revenues for the six months ended December 31, 1998 were $18,639,043 compared to
$5,541,383  for  the  six  months  ended  December  31,  1997,  an  increase  of
$13,097,660 or 236.4 percent.  The increase in revenues was primarily due to the
inclusion of revenues from the newly acquired subsidiaries,  SO Corporation, LTS
and OMS. After the elimination of the  subsidiaries not included in the previous
year,  revenues for the six-month period ended December 31, 1998 were $8,716,383
compared to $5,541,383  for the six months ended December 31, 1997. The increase
of $3,175,000,  or 57.3,  percent was  attributable to three larger projects for
Onsite and OBS.

Cost of sales for the period ended December 31, 1998 were $15,650,366,  compared
to  $4,141,865   for  the  period  ended  December  31,  1997,  an  increase  of
$11,508,501,  or  277.9  percent.  After  elimination  of the  subsidiaries  not
included in the previous  year,  costs of sales for the  six-month  period ended
December 31, 1998 were $6,550,142  compared to $4,141,865 for the same period in
1997,  an  increase  of  $2,408,277  or 58.1  percent.  The  increase is largely
attributed to the increase in project costs (associated with increased revenues)
for the three major projects mentioned above for Onsite and OBS.

Gross margin for the six months ended  December 31, 1998 was  $2,988,677 or 16.0
percent of revenues,  compared to $1,399,518,  or 25.3 percent of revenues,  for
the six months  ended  December  31,  1997.  The  decrease in gross  margin as a
percentage of sales was primarily the result of several larger  contracts in the
current  period  with lower than  historical  margins.  In  addition,  the newly
acquired  subsidiary,  LTS, a lighting  contractor,  traditionally  operates  on
narrower  margins  and had three  contracts  in the period  where  margins  were
negative, due to unanticipated  installation cost overruns. After elimination of
gross margin from the subsidiaries  not included in the previous  period,  gross
margin  for the six months  ended  December  31,  1998 was  $2,166,241,  or 24.9
percent of revenues, compared to $1,399,518, or 25.3 percent of revenues for the
six months ended December 31, 1997.

Selling,  General and  Administrative  expenses ("SG&A") were $6,003,920 for the
six month period ended  December 31, 1998,  compared to  $1,705,186  for the six
months ended December 31, 1997. The increase of $4,298,734, or 252.1 percent, is
largely  attributable to the addition of the activity of the three  subsidiaries
mentioned above. After elimination of SG&A from the subsidiaries not included in
the  previous  year,  SG&A  for the six  months  ended  December  31,  1998  was
$3,330,690 compared to $1,705,186 for the six months ended December 31, 1997, an
increase of $1,625,504,  or 95.3 percent. This change was primarily attributable
to the increase of legal and accounting expenses due to acquisitions and related

<PAGE>8


audits,  the  increase in staff at the  corporate  office and the  addition of a
branch office in Northern California.

Net other  expense was  $102,262  for the six months  ended  December  31, 1998,
compared  to $773 for the same  period in 1997.  The  increase is largely due to
additional  interest  expense  from the newly  acquired  subsidiaries  and their
existing  interest  bearing debts offset by an increase in interest  income from
the same subsidiary.  After  elimination of the subsidiaries not included in the
previous  year,  net other income was $57,079 for the period ended  December 31,
1998,  compared to net expense of $773 for the six month period  ended  December
31, 1997. The increase of $57,852 was primarily  attributable to interest income
from loans to stockholders.

Net loss for the six months ended December 31, 1998 was $3,117,505 or $0.17 loss
per share,  compared to a net loss of $306,441,  or approximately $0.03 loss per
share for the six-month period ended December 31, 1997. After elimination of net
loss from the  subsidiaries  not  included in the  previous  year,  net loss was
$1,107,370,  compared  to a net loss of  $306,441  loss for the same period last
year.

Three months ended December 31, 1998 compared to the three months ended December
31, 1997

Revenues  for the three month period  ended  December 31, 1998 were  $9,320,493,
compared to $3,303,578 for the three months ended December 31, 1997, an increase
of $6,016,915 or 182.1 percent.  The increase is primarily due to the additional
revenues of the newly acquired subsidiaries.  After elimination of revenues from
the acquired subsidiaries not included in the previous period,  revenues for the
three-month  period  ended  December  31,  1998  were  $3,805,908,  compared  to
$3,303,578  for the same  period in 1997.  The  increase  of  $502,330,  or 15.2
percent,  is  primarily  due to  increased  revenues on  contracts at OBS and an
increase in consulting revenues at Onsite.

Cost  of  sales  for the  three  month  period  ended  December  31,  1998  were
$7,757,337,  compared to $2,555,071 for the same period ended December 31, 1997,
an increase of  $5,202,266,  or 203.6  percent.  As  previously  discussed,  the
increase  in cost of sales is due to the  unanticipated  cost  overruns on three
projects for LTS.  After  elimination  of the  subsidiaries  not included in the
previous  year,  cost of sales for the  quarter  ended  December  31,  1998 were
$2,497,995,  compared to  $2,555,071  for the same period in 1997, a decrease of
57,076, or 2.2 percent.

Gross Margin was  $1,563,156  or 16.8  percent of revenues  for the  three-month
period  ended  December  31,  1998,  compared to  $748,507,  or 22.7  percent of
revenues for the  three-month  period ended  December 31, 1997.  The decrease in
margin  resulted  primarily from previously  mentioned  losses on three lighting
projects of LTS and slightly lower margins overall. After the elimination of the
activity  from  the  newly  acquired  subsidiaries,  the  gross  margin  for the
three-month  period ended December 31, 1998 was  $1,307,913,  or 34.4 percent of
revenues, compared to $748,507, or 22.7 percent of revenues, in the three months
ended  December 31, 1997.  This  increase of $559,406 in gross margin is largely
attributable to the increase in consulting  revenues in the  three-month  period
ended December 31, 1998

SG&A was $3,021,839  for the three months ended  December 31, 1998,  compared to
$1,102,401  for the three  months  ended  December  31,  1997,  an  increase  of
$1,919,438 or 174.1 percent.  The change was attributable to the additional SG&A
associated  with the newly acquired  subsidiaries.  After the elimination of the
activity from the newly acquired  subsidiaries,  SG&A for the three-month period
ended  December 31, 1998 was  $1,921,413,  compared to  $1,102,401  for the same
period in 1997.  The  increase  of  $819,012,  or 74.3  percent,  was  primarily

<PAGE>9


attributable  to the  addition  of staff at the  corporate  office and  expenses
related to these employees and others in a new office in Northern California.

Net other  expense was $48,315 in the three  months  ended  December  31,  1998,
compared to net other income of $3,712 for the three month period ended December
31,  1997,  a  decrease  of  $52,027.  The  increase  in net other  expense  was
substantially  attributable  to  the  additional  interest  expense  related  to
liabilities  acquired  from  the  subsidiaries.  After  the  elimination  of the
activity  from the newly  acquired  subsidiaries,  net other income was $28,681,
compared to net other income of $3,712 for the three-month period ended December
31, 1997. The increase of $24,969,  or 672.7  percent,  was primarily due to the
interest income on loans to shareholders.

Net loss for the three months ended December 31, 1998 was  $1,506,998,  or $0.08
loss per share,  compared to net loss of $350,182,  or approximately  $0.03 loss
per share. After elimination of net income/(loss) from the acquired subsidiaries
not  included  in the  previous  period,  net loss for the  three  months  ended
December 31, 1998 was $584,819,  compared to the quarter ended December 31, 1997
net loss of $350,182, an increase of $234,637, or 67.0 percent.

Liquidity and Capital Resources

Cash flows used in operating activities during the six months ended December 31,
1998 were  $654,366,  compared  to cash flows used in  operating  activities  of
$630,342 for the six months ended December 31, 1997, an increase of $24,024,  or
3.8 percent.  The company has a working  capital  deficit of  $5,355,277,  as of
December 31, 1998, compared to a deficit of $2,693,367 as of June 30, 1998.

Cash flows used in investing  activities  was  $1,204,939  during the six months
ended  December 31, 1998,  compared to $123,190  during the same period in 1997.
The increase of $1,081,749 is mainly  attributable  to loans to  stockholders of
newly acquired subsidiaries.

Cash flows provided by financing  activities were $394,893 during the six months
ended December 31, 1998, compared to cash flows provided by financing activities
of $1,869,147 for the comparable period last year. The decrease of $1,474,254 in
cash provided by financing activities is attributable to a reduction in proceeds
from the sale of stock and additional repayment of long-term debt.

During the second  quarter ended  December 31, 1998,  the Company  exercised its
right under a stock Subscription Agreement to require Westar Capital to purchase
200,000 shares of Series C Convertible Preferred Stock for $1,000,000.  However,
Westar Capital filed suit seeking declaratory  judgment that it was not required
to purchase the Series C Convertible Preferred Stock due to an alleged breach by
the Company of such agreement.  (See Part II, Item 1. Legal  Proceedings).  As a
result of this  non-payment,  the Company has  experienced  increased  cash flow
difficulties.  On February 12, 1999, the Company settled its lawsuit with Westar
Capital,  and Westar Capital agreed to purchase the Series C Preferred Stock for
$1,000,000.  Further,  under the terms of the settlement agreement,  the Company
was required to concurrently repay to Western Resources,  Inc.  ("Western"),  an
affiliate of Westar Capital, $663,025 for services rendered. Management believes
that with the net proceeds from the Series C Preferred  Stock  subscription  and
anticipated revenues from other contracts, the Company will have sufficient cash
flow to sustain operations for the fiscal year ended June 30, 1999.  However, in
the event that  anticipated  contracts,  or payment  under  such  contracts  are
delayed,  there may be an adverse effect on the Company's liquidity.  Management
believes  that  the  above actions will allow the Company to continue as a going

<PAGE>10


concern.  Cash requirements beyond the next six months depend upon the Company's
profitability,  its  ability  to manage and obtain  additional  working  capital
requirements  and its rate of  growth.  (See  Note 4  Cautionary  Statement  for
Purposes of the "Safe Harbor"  Provisions of the Private  Securities  Litigation
Reform Act of 1995.)

Year 2000

The Company is developing  plans to address  issues related to the impact on its
computer systems of the year 2000. The Company believes that  substantially  all
software  applications  currently  being used for the financial and  operational
systems have adequately  addressed any year 2000 issues.  Most hardware  systems
have been assessed and plans are being developed to address systems modification
requirements. The financial impact of making any required systems changes is not
expected  to be  material  to the  Company's  consolidated  financial  position,
liquidity or results of operations.  Any risks the Company faces are expected to
be external to ongoing operations.  The Company has numerous alternative vendors
for critical  supplies,  materials and components  and thus current  vendors and
subcontractors  who  have  not  adequately  prepared  for the  year  2000 can be
substituted  in  favor of those  that  have  prepared.  (See  Note 4  Cautionary
Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995.)

                           Part II - Other Information

Item 1.    Legal Proceedings

In  October  1998,   Energy   Conservation   Consultants,   Inc.   ("ECCI"),   a
Louisiana-based  company,  filed a suit (United States District County,  Eastern
District of Louisiana, Case No. 98-2914) against OBS alleging breach of contract
in connection with one of the Company's  projects.  The suit seeks reimbursement
for expenses  allegedly incurred by ECCI in the preparation of an audit and lost
profits  in the  aggregate  amount  of  $748,000.  The  parties  have  agreed to
mediation in a continuing effort to settle the matter; however, no agreement has
been  reached.  Management  believes,  based on  current  information,  that any
settlement would not have a material impact on the Company.

On December 17,  1998,  Western  filed suit  against  OBS, a  subsidiary  of the
Company,  in the Third Judicial  District for Shawnee  County,  Kansas (Case No.
98CV1628  Division 6). Western alleged that OBS breached its contract by failing
to pay Western for services  performed.  On that same date,  Westar Capital,  an
affiliate  of  Western,  filed suit  against  the  Company in the United  States
District Court for the District of Kansas (Civil Action No. 98-2579-KHV). In its
complaint,  Westar Capital sought declaratory judgment that it was not obligated
to purchase  $1,000,000 of the Company's  Series C Convertible  Preferred  Stock
because  the  Company  breached  its  obligations  under  a  stock  Subscription
Agreement  entered into between Westar Capital and the Company.  On February 12,
1999, the Company,  OBS,  Western,  and Westar Energy settled their  litigation.
Under the terms of the settlement  agreement,  Westar Capital agreed to purchase
$1,000,000 of the Company's Series C Convertible Preferred Stock, and OBS agreed
to pay Western $663,025 for services performed.  Further, under the terms of the
settlement  agreement,  the  Company  agreed  to repay a loan in the  amount  of
$290,000,  plus interest, to Westar Energy, Inc., an affiliate of Westar Capital
and  Western,  by March 17,  1999.  The loan was used by the Company to purchase
certain assets of Mid-States Armature Works, Inc. As a result of the settlement,
the two lawsuits were dismissed with prejudice.

Item 2.    Changes in Securities - Not Applicable

Item 3.    Defaults upon Senior Securities - Not Applicable

<PAGE>11


Item 4.    Submission of Matters to a Vote of Security Holders - Not Applicable

Item 5.    Other - Not Applicable

Item 6.    Exhibits and Reports on Form 8-K

           Exhibit 27        Financial Data Schedules



<PAGE>12



                                   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 16, 1999          By:  \s\ Richard T. Sperberg     
                                        -----------------------------
                                        Richard T. Sperberg
                                        Chief Executive Officer


                                   By:  \s\ J. Bradford Hanson              
                                        -----------------------------
                                        J. Bradford Hanson
                                        Chief Financial Officer and
                                        Principal Accounting Officer