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 September 30, 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 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)              (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
November  13, 1998 is 18,457,253.


<PAGE>2


                            Onsite Energy Corporation
                           Consolidated Balance Sheet
                               September 30, 1998
                                   (Unaudited)


<TABLE>
<CAPTION>


<S>                                                                                                <C>    
Current Assets:
    Cash                                                                                             $   1,147,982
    Cash-restricted                                                                                        157,836
    Accounts receivable, net of allowance for doubtful                                                              
      accounts of $90,000                                                                                5,993,185
    Inventory                                                                                              161,429
    Capitalized project costs                                                                              125,108
    Costs and estimated earnings in excess of billings
     on uncompleted contracts                                                                            1,265,971
    Other assets                                                                                           237,486
                                                                                                     -------------

           TOTAL CURRENT ASSETS                                                                          9,088,997

Property and equipment, net of accumulated depreciation and amortization                                 1,831,698
Excess of purchase over net assets acquired, net of amortization of $1,739,859                           3,438,120
Other                                                                                                       47,088
                                                                                                     -------------

           TOTAL ASSETS                                                                              $  14,405,903
                                                                                                     =============
                 LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
    Notes payable - related parties                                                                  $     324,535
    Current portion of notes payable                                                                     2,216,570
    Accounts payable                                                                                     5,462,722
    Billings in excess of costs and estimated earnings                                                              
      on uncompleted contracts                                                                           3,414,170
    Accrued expenses and other liabilities                                                               1,363,397
                                                                                                     -------------

          TOTAL CURRENT LIABILITIES                                                                     12,781,394

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

          TOTAL LIABILITIES                                                                             13,246,753
                                                                                                     -------------

Commitments and contingencies                                                                                    -

Shareholders' Equity:
     Preferred Stock, Series C,842,500 shares authorized,
        413,280 issued and outstanding (Aggregate $2,066,400                                                        
        liquidation preference)                                                                                413
     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, 18,457,253 issued and outstanding                                                    18,457
       Class B common stock, 1,000 shares authorized
           none issued and outstanding                                                                           -
    Additional paid-in capital                                                                          24,332,954
    Notes receivable - shareholders                                                                     (2,141,952)
    Accumulated deficit                                                                                (21,050,722)
                                                                                                     -------------
         TOTAL SHAREHOLDERS' EQUITY                                                                      1,159,150
                                                                                                     -------------
TOTAL LIABILTIES AND SHAREHOLDERS' EQUITY                                                            $  14,405,903
                                                                                                     =============
</TABLE>


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


<PAGE>3


                            Onsite Energy Corporation
                      Consolidated Statements of Operations
                                   (Unaudited)






<TABLE>
<CAPTION>

                                                                          Three Months Ended September 30,

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

<S>                                                             <C>                                  <C>           
Revenues                                                        $     9,318,550                      $    2,237,805

Cost of sales                                                         7,893,029                           1,586,794
                                                                ---------------                      --------------
    Gross Margin                                                      1,425,521                             651,011

Selling, general,
    and administrative expenses                                       2,691,458                             490,270
   Depreciation and  amortization (expense)                             290,622                             105,777
                                                                ---------------                      --------------
     Operating income (loss)                                         (1,556,559)                             54,964
                                                                ---------------                      --------------
Other income (expense):
   Interest (expense)                                                   (91,871)                             (8,588)
   Interest income                                                       37,924                               4,103
                                                                ---------------                      --------------
     Total other income (expense)                                       (53,947)                             (4,485)
                                                                ---------------                      --------------
Income (loss) from operations before provision          
   for income taxes                                                  (1,610,506)                             50,479
 
Provision for income taxes                                                    -                               6,738
                                                                ---------------                      --------------

Net income (loss)                                               $    (1,610,506)                      $      43,741
                                                                ===============                       =============
 
Net loss allocated to common shareholders                       $    (1,636,881)                      $      43,741
                                                                ===============                       =============

Basic and diluted income (loss) per common share                $         (0.09)                      $           *
                                                                ===============                       =============
                                                                 
Weighted average shares outstanding                                  18,295,536                          10,944,172
                                                                ===============                       =============

</TABLE>


* Less than $0.01 per share



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


<PAGE>4


                            Onsite Energy Corporation
                      Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>
 
                                                                                            Three Months Ended
                                                                                               September 30,
   
                                                                                           1998             1997
                                                                                           ----             ----
<S>                                                                                <C>                <C> 
Cash flows from operating activities:

Net income (loss)                                                                    $   (1,610,506)   $     43,741

Adjustments to reconcile net income (loss) to net cash
   used in operating activities:
       Amortization of goodwill                                                             125,598         100,000
       Provision for bad debts                                                               74,970           6,772
       Depreciation                                                                         165,024           5,777
Change in operating assets and liabilities:
       Accounts receivable                                                               (2,544,304)       (107,724)
       Increase (decrease) in billings related to costs
         and estimated earnings on uncompleted contracts                                    204,360        (262,728)
       Inventory                                                                             16,786               -
       Other assets                                                                         318,343          (5,346)
       Cash-restricted                                                                            -          43,152
       Accounts payable                                                                   2,082,451         130,388
       Accrued expenses and other liabilities                                              (170,664)       (113,301)
                                                                                     --------------    ------------
       Net cash used in operating activities                                             (1,337,942)       (159,269)
                                                                                     --------------    ------------
Cash flows from investing activities:
       Purchases of property and equipment                                                  (38,544)              -
       Loans to stockholders                                                               (806,735)              -
                                                                                     --------------    ------------
 
      Net cash used by investing activities                                                (845,279)
                                                                                     --------------    ------------
Cash flows from financing activities:
       Proceeds from issuance of preferred stock                                          1,000,000               -
       Proceeds from exercise of stock options                                               15,301               -
       Repayment of notes payable - related party                                          (143,794)              -
       Proceeds from borrowings, net                                                        366,690         (51,299)
                                                                                     --------------    ------------
        Net cash provided by (used in) financing activities                               1,238,197         (51,299)
                                                                                     --------------    ------------
        Net increase (decrease) in cash                                                    (945,024)       (210,568)

Cash, beginning of period                                                                 2,093,006         526,894
                                                                                     --------------    ------------
Cash, end of period                                                                  $    1,147,982    $    316,326
                                                                                     ==============    ============ 


</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  September  30,  1998,  and the
consolidated  statements of operations and cash flows for the three months ended
September 30, 1998 and 1997,  represent  the  financial  position and results of
operations of the Company.

NOTE 3: 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  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

<PAGE>6



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 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 utility services
and industrial  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 Latin America.

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

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

The  Company  also owns a general  partnership  interest in Onsite  Partners,  a
California general  partnership,  and a general partnership interest in American
Private Power II, a California general partnership, both of which are inactive.

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



<PAGE>7


Results of Operations.

Revenues for the  three-month  period ended  September 30, 1998 were  $9,318,550
compared to $2,237,805  for the same period in 1997, an increase of  $7,080,745,
or  approximately  316.4 percent.  The increase in revenues was primarily due to
the inclusion of all of the newly acquired  subsidiaries  that were not included
in 1997. After elimination of revenues from the subsidiaries not included in the
previous year, revenues for the three month period ended September 30, 1998 were
$3,342,456  compared to $2,237,805,  an increase in revenues of  $1,104,651,  or
49.4 percent.  The increase in revenue was due primarily to the existence of one
major  contract  along with  several  smaller  contracts  in the current  fiscal
quarter, whereas the prior year did not benefit from any single major contract.

Cost of sales for the quarter ended September 30, 1998 was $7,893,029,  compared
to  $1,586,794  for the  quarter  ended  September  30,  1997,  an  increase  of
$6,306,235,  or approximately 397.4 percent.  After elimination of cost of sales
from the  subsidiaries  not included in the previous year, cost of sales for the
three  month  period  ended  September  30,  1998 were  $2,712,938,  compared to
$1,586,794, an increase of $1,126,144, or 71 percent.

Gross margin for the three month period ended  September 30, 1998 was $1,425,521
(15.3 percent of revenues), compared to $651,011 (29.1 percent of revenues). The
decrease  in gross  margin as a  percentage  of sales was the  result of several
larger  contracts  in the current  quarter with lower than  historical  margins.
After  elimination  of gross  margin from the  subsidiaries  not included in the
previous year,  gross margin for the three month period ended September 30, 1998
was $629,517  (18.8 percent of revenues),  compared to $651,011 (29.1 percent of
revenues) for the three months ended  September 30, 1997. The decrease in margin
as a  percentage  of sales was  primarily  the result of the  reasons  discussed
above.

Selling,  general and  administrative  ("SG&A")  expense  for the quarter  ended
September  30, 1998 was  $2,982,080  compared to $596,047 for the quarter  ended
September 30, 1997, an increase of $2,386,033,  or approximately  400.3 percent.
After  elimination  of SG&A from the  subsidiaries  not included in the previous
year,  SG&A for the three month period ended  September 30, 1998 was $1,157,367,
compared to $596,047, an increase of $561,320, or 94.1 percent. The increase was
substantially due to an overall increase in salaries and benefits,  a decline in
salaries and benefits  reclassified  from SG&A to cost of sales,  an increase in
legal and accounting expenses as a result of the recent acquisitions and related
audits and the costs of a new office in Northern California.

Net other expense for the quarter ended September 30, 1998 was $53,947, compared
to $4,485 for the three month period ended  September  30, 1997,  an increase of
$49,462.  The  increase  was due to an  increase in  interest  expense  that was
primarily due to newly acquired subsidiaries and their existing interest bearing
debts. After elimination of net other expense from the subsidiaries not included
in the  previous  year,  net other income was $26,864 for the three month period
ended  September  30, 1998 compared to $4,485 for the same three month period in
1997.

Net loss for the three months ended September 30, 1998 was  $1,610,506,  or $.09
loss per share,  compared to net income of $43,741,  or less than $0.01 earnings
per share for the same period in 1997.  After  elimination  of net loss from the
subsidiaries  not included in the previous year, net loss was $500,739,  or $.03
loss per share for the three month period ended September 30, 1998,  compared to
net income of $43,741, or less than $.01 earnings per share in 1997.


<PAGE>8


Liquidity and Capital Resources

The  Company's  cash and cash  equivalents  were  $1,147,982 as of September 30,
1998,  compared to  $2,093,006  as of June 30,  1998,  a decrease  of  $945,024.
Working capital was a negative  $3,692,397 as of September 30, 1998, compared to
a negative $2,693,367 as of June 30, 1998.

Cash flows used by  operating  activities  were  $1,337,942  for the three month
period  ended  September  30,  1998  compared  to cash flows  used by  operating
activities of $159,269 for the same three month period in 1997.

Cash flows  used by  investing  activities  in first  three  months of 1998 were
$845,279 for the three months ended September 30, 1998,  compared to none in the
first  fiscal  quarter  in  the  prior  year.  The  increase  was  substantially
attributable to loans and advances to affiliates of the Company.

Cash flows provided by financing activities were $1,238,197 for the three months
ended September 30, 1998, compared to cash flows used from financing  activities
of $51,299 for the three month period ended  September  30, 1997.  The principal
reason for the increase  was due to the exercise of a right  pursuant to a stock
subscription  agreement  with an  affiliate  for the sale of  200,000  shares of
Series C Convertible Preferred Stock for $1,000,000.

The Company has shown significant net losses for the year ended June 30, 1998 as
well as the three months ended  September 30, 1998.  During these  periods,  the
Company has taken  steps to reduce the losses and enhance its future  viability.
Management  believes  that  it will be able  generate  additional  revenues  and
achieve  operating  efficiencies  through its recent  acquisitions as well as by
other means to  ultimately  achieve  profitable  operations.  In  addition,  the
Company has exercised its right under a stock subscription  agreement to require
the purchase of an additional  200,000 shares of Series C Convertible  Preferred
Stock for  $1,000,000.  Management  believes  that all of the above actions will
allow the Company to continue as a going concern.  Cash requirements  beyond the
next 12 months  depend upon the Company's  profitability,  its ability to manage
working  capital  requirements  and its rate of growth.  (See Note 3  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 3
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.  Management is
attempting  to settle  the  matter;  however,  no  agreement  has been  reached.

<PAGE>9


Management believes, based on current information, that any settlement would not
have a material impact on the Company.

Item 2.    Changes in Securities - Not Applicable

Item 3.    Defaults upon Senior Securities - Not Applicable

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 Schedule

<PAGE>10



                                   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:   November 25, 1998          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