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U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C., 20549

FORM 10-QSB

|(Mark One)                      
|--------------------------------
|x                               
|                                
|o                               
|                                
|Commission File Number   1-12738
|                                

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

|Delaware                                                       |  | 33-0576371                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               |  |                                     
|701 Palomar Airport Road, Suite 200, Carlsbad, CA 92009       
|(Address of principal executive offices)                      
|                                                               |  |                                     
|(760) 931-2400 Issuers telephone number:                     
|                                                              

The number of Class A common stock, $0.001 par value, outstanding as
of February 1, 2003 is 21,736,000.

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Part I  Financial Information Item 1. Financial Statements

Onsite Energy Corporation
Condensed Consolidated Balance Sheet (Amounts in thousands except per share amounts) (Unaudited)

|                                            |                                                                                                                                                                                   | Balance at        |      
|------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------- | -----
|                                            |                                                                                                                                                                                   |                   |      
|                                            |                                                                                                                                                                                   | December 31, 2002 |      
|                                            |                                                                                                                                                                                   |                   |      
|ASSETS                                      |                                                                                                                                                                                   |                   |      
|Current Assets:                             |                                                                                                                                                                                   |                   |      
|                                            | Cash                                                                                                                                                                              |                   | $    
|                                            | Cash-restricted                                                                                                                                                                   |                   |      
|                                            | Accounts receivable, net of allowance for doubtful accounts of $68 and $35 as of December 31, 2002, and June 30,
2002, respectively.                                              |                   |      
|                                            | Costs and estimated earnings in excess of billings on uncompleted contracts                                                                                                       |                   |      
|                                            | Capitalized project costs                                                                                                                                                         |                   |      
|                                            | Other assets                                                                                                                                                                      |                   |      
|                                            |                                                                                                                                                                                   |                   |      
|                                            | TOTAL CURRENT ASSETS                                                                                                                                                              |                   |      
|                                            | Property and equipment, net of accumulated depreciation and amortization of $319 and $308 as of December 31, 2002, and June 30,
2002, respectively.                               |                   |      
|                                            | Note receivable                                                                                                                                                                   |                   |      
|                                            | Other assets                                                                                                                                                                      |                   |      
|                                            |                                                                                                                                                                                   |                   |      
|                                            | TOTAL ASSETS                                                                                                                                                                      |                   | $    
|                                            |                                                                                                                                                                                   |                   |      
|LIABILITIES AND STOCKHOLDERS DEFICIT       |                                                                                                                                                                                   |                   |      
|Current Liabilities:                        |                                                                                                                                                                                   |                   |      
|                                            | Notes payable, current portion                                                                                                                                                    |                   | $    
|                                            | Accounts payable                                                                                                                                                                  |                   |      
|                                            | Liabilities in excess of assets held for sale                                                                                                                                     |                   |      
|                                            | Accrued expenses and other liabilities                                                                                                                                            |                   |      
|                                            | Billings in excess of costs and estimated earnings on uncompleted contracts                                                                                                       |                   |      
|                                            |                                                                                                                                                                                   |                   |      
|                                            | TOTAL CURRENT LIABILITIES                                                                                                                                                         |                   |      
|Long-Term Liabilities:                      |                                                                                                                                                                                   |                   |      
|                                            | Notes payable, less current portion                                                                                                                                               |                   |      
|                                            | Deferred income                                                                                                                                                                   |                   |      
|                                            |                                                                                                                                                                                   |                   |      
|                                            | TOTAL LIABILITIES                                                                                                                                                                 |                   |      
|                                            |                                                                                                                                                                                   |                   |      
|Commitments and contingencies               |                                                                                                                                                                                   |                   |      
|Stockholders Deficit:                      |                                                                                                                                                                                   |                   |      
|                                            | Preferred Stock, Series C, $.001 par value, 742 shares authorized, 649 issued and outstanding as of December 31,
2002 and June 30, 2002 (aggregate $3,245 liquidation preference) |                   |      
|                                            | Preferred Stock, Series D, $.001 par value, 158 shares authorized, none issued and outstanding as of December 31, 2002 and June 30,
2002.                                         |                   |      
|                                            | Preferred Stock, Series E, $.001 par value, 50 shares authorized, issued and outstanding as of December 31, 2002
and June 30, 2002 (aggregate $1,000 liquidation preference).     |                   |      
|                                            | Common Stock, $.001 par value, 40,000 shares authorized as of December 31, 2002 and June 30, 2002:                                                                                |                   |      
|                                            | Class A common stock, 37,999 shares authorized,  21,736 issued and outstanding as of December 31, 2002 and
June 30, 2002, respectively.                                           |                   |      
|                                            | Class B common stock, 1,000 shares authorized, none issued and outstanding as December 31, 2002 and June 30, 2002.                                                                |                   |      
|                                            | Additional paid-in capital                                                                                                                                                        |                   |      
|                                            | Notes receivable - stockholders                                                                                                                                                  |                   |      
|                                            | Loans receivable from officers                                                                                                                                                    |                   |      
|                                            | Accumulated deficit                                                                                                                                                               |                   |      
|                                            |                                                                                                                                                                                   |                   |      
|                                            | TOTAL STOCKHOLDERS DEFICIT                                                                                                                                                       |                   |      
|                                            |                                                                                                                                                                                   |                   |      
|TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT |                                                                                                                                                                                   | $                 | 1,792
|                                            |                                                                                                                                                                                   |                   |      

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

2



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



|                                                                    |                                     | Three months ended December 31, |       | Six months ended December 31, |  
|------------------------------------------------------------------- | ----------------------------------- | ------------------------------- | ----- | ----------------------------- | -
|                                                                    |                                     |                                 |       |                               |  
|                                                                    |                                     | 2002                            |       | 2001                          |  
|                                                                    |                                     |                                 |       |                               |  
|Revenues                                                            |                                     | $                               | 1,124 |                               | $
|Project incentive revenue                                           |                                     |                                 | 287   |                               |  
|                                                                    |                                     |                                 |       |                               |  
|                                                                    | Total revenues                      |                                 |       | 1,411                         |  
|Cost of revenues                                                    |                                     |                                 | 703   |                               |  
|                                                                    |                                     |                                 |       |                               |  
|                                                                    | Gross profit                        |                                 |       | 708                           |  
|Selling, general and administrative expenses                        |                                     |                                 | 669   |                               |  
|Depreciation and amortization expense                               |                                     |                                 | 6     |                               |  
|Gain on extinguishment of debt                                      |                                     |                                 | (47   | )                             |  
|Compensation under variable incentive stock option plan             |                                     |                                 |      |                               |  
|                                                                    |                                     |                                 |       |                               |  
|                                                                    | Operating income                    |                                 |       | 80                            |  
|Other expense, net                                                  |                                     |                                 | (27   | )                             |  
|                                                                    |                                     |                                 |       |                               |  
|Income from continuing operations before provision for income taxes |                                     |                                 | 53    |                               |  
|Provision for income taxes                                          |                                     |                                 | 11    |                               |  
|                                                                    |                                     |                                 |       |                               |  
|Income from continuing operations                                   |                                     |                                 | 42    |                               |  
|Discontinued operations                                             |                                     |                                 |       |                               |  
|                                                                    | Income from discontinued operations |                                 |       | 146                           |  
|                                                                    |                                     |                                 |       |                               |  
|Net income                                                          |                                     | $                               | 188   |                               | $
|                                                                    |                                     |                                 |       |                               |  
|Basic earnings per common share                                     |                                     |                                 |       |                               |  
|                                                                    | Income (loss) from operations       |                                 | $     | (0.001                        | )
|                                                                    | Discontinued Operations             |                                 | $     | 0.006                         |  
|                                                                    |                                     |                                 |       |                               |  
|                                                                    | Net income                          |                                 | $     | 0.005                         |  
|                                                                    |                                     |                                 |       |                               |  
|Diluted earnings per common share                                   |                                     |                                 |       |                               |  
|                                                                    | Income (loss) from operations       |                                 | $     | (0.001                        | )
|                                                                    | Discontinued Operations             |                                 | $     | 0.006                         |  
|                                                                    |                                     |                                 |       |                               |  
|                                                                    | Net income                          |                                 | $     | 0.005                         |  
|                                                                    |                                     |                                 |       |                               |  

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

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

|                                                                                            |                                                                             | Six months ended December 31, |    
|------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ----------------------------- | ---
|                                                                                            |                                                                             |                               |    
|                                                                                            |                                                                             | 2002                          |    
|                                                                                            |                                                                             |                               |    
|Cash flows from operating activities:                                                       |                                                                             |                               |    
|Net income                                                                                  |                                                                             | $                             | 497
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |                                                                             |                               |    
|                                                                                            | Depreciation and amortization                                               |                               |    
|                                                                                            | Compensation under variable incentive stock option plan                     |                               |    
|                                                                                            | Gain on extinguishment of debt                                              |                               |    
|                                                                                            | Gain on sale of discontinued operations                                     |                               |    
|(Increase) decrease in:                                                                     |                                                                             |                               |    
|                                                                                            | Cash-restricted                                                             |                               |    
|                                                                                            | Accounts receivable                                                         |                               |    
|                                                                                            | Costs and estimated earnings in excess of billings on uncompleted contracts |                               |    
|                                                                                            | Capitalized project costs                                                   |                               |    
|                                                                                            | Other assets                                                                |                               |    
|Increase (decrease) in:                                                                     |                                                                             |                               |    
|                                                                                            | Accounts payable                                                            |                               |    
|                                                                                            | Billings in excess of costs and estimated earnings on uncompleted contracts |                               |    
|                                                                                            | Accrued expenses and other liabilities                                      |                               |    
|                                                                                            | Deferred income                                                             |                               |    
|                                                                                            |                                                                             |                               |    
|                                                                                            | Net cash provided by operating activities                                   |                               |    
|                                                                                            |                                                                             |                               |    
|Cash flows from investing activities:                                                       |                                                                             |                               |    
|                                                                                            | Retirement (purchases) of property and equipment, net                       |                               |    
|                                                                                            | Proceeds from sale of discontinued operations                               |                               |    
|                                                                                            | Notes receivable from stockholders                                          |                               |    
|                                                                                            |                                                                             |                               |    
|                                                                                            | Net cash provided by (used in) investing activities                         |                               |    
|                                                                                            |                                                                             |                               |    
|Cash flows from financing activities:                                                       |                                                                             |                               |    
|                                                                                            | Proceeds from issuance of common stock                                      |                               |    
|                                                                                            | Proceeds from notes payable                                                 |                               |    
|                                                                                            | Repayment of notes payable                                                  |                               |    
|                                                                                            |                                                                             |                               |    
|                                                                                            | Net cash provided by (used by) financing activities                         |                               |    
|                                                                                            |                                                                             |                               |    
|Net increase in cash                                                                        |                                                                             |                               | 43 
|Cash, beginning of period                                                                   |                                                                             |                               | 8  
|                                                                                            |                                                                             |                               |    
|Cash, end of period                                                                         |                                                                             | $                             | 51 
|                                                                                            |                                                                             |                               |    
|Non-cash transactions:                                                                      |                                                                             |                               |    
|                                                                                            | Accounts payable exchanged for note payable                                 |                               | $  
|                                                                                            |                                                                             |                               |    

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

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ONSITE ENERGY CORPORATION



NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

|NOTE 1: | As contemplated by the Securities and Exchange Commission under Item 310 of Regulation S-B, the accompanying consolidated 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,
2002, and all other subsequent filings. In the opinion of management, the accompanying unaudited consolidated 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, 2002, and June 30, 2002, the consolidated statements of operations for the three and six months ended December 31, 2002, and
2001, and the consolidated statements of cash flows for the six months ended December 31, 2002 and 2001 represent the financial position and results of operations of the Company. The results for the interim period ended December 31, 2002, are not
necessarily indicative of results that will be obtained in future periods.                                                                                                                                                                                                                                                                                                                                                              
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | Effective December 31, 2002 the FASB issued SFAS No. 148 Accounting for Stock-Based Compensation-Transition and Disclosure.  Under this statement, the
Company can elect to include the cost of options issued under its incentive stock option plan as measured by the fair value method or the intrinsic value method in its calculation of net income.  In the event the Company continues to use the
intrinsic value method to measure the cost of incentive stock options, the Company must provide a footnote disclosure of the pro-forma effect on net income.  The Company plans to continue to use the intrinsic value method and to provide
supplemental pro-forma disclosures in the footnotes of its interim and annual financial statements. The Company plans to make the required disclosures in the third quarter of fiscal year 2003, ending March 31, 2003.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others.  This interpretation addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees.  This interpretation also clarifies the
requirements related to the recognition of a liability by a guarantor at the inception of a guarantee for the obligations the guarantor has undertaken in issuing that guarantee.  Management has assessed the impact of this interpretation and
believes it has no material impact.                                                                                                                                                                                       
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | In January 2003, the FASB issued FASB Interpretation No. 46. Consolidation of Variable Interest Entities.  This interpretation clarifies the application of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



5



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|        | Accounting Research Bulletin No. 51, Consolidated Financial Statement, to certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  It further clarifies whether an entity shall be subject to
consolidation according to the provisions of this interpretation, if by design, certain conditions exist.  Management is assessing the impact of this interpretation, but believes it has no material impact.
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|NOTE 3: | Earnings per share calculations for the three and six month periods ended December 31, 2002, and December 31, 2001, are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

(Amounts in thousands except per share amounts)

|                                                                                              |  | Three Months Ended December 31, |        | Six Months Ended December 31, |  
|--------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | ----------------------------- | -
|                                                                                              |  |                                 |        |                               |  
|                                                                                              |  |                                 | 2002   |                               |  
|                                                                                              |  |                                 |        |                               |  
|BASIC EARNINGS                                                                                |  |                                 |        |                               |  
|Net income                                                                                    |  | $                               | 188    |                               | $
|Less: Preferred stock dividends                                                               |  |                                 | (81    | )                             |  
|                                                                                              |  |                                 |        |                               |  
|Net income allocated to common shareholders                                                   |  | $                               | 107    |                               | $
|                                                                                              |  |                                 |        |                               |  
|Weighted average number of common shares                                                      |  |                                 | 21,736 |                               |  
|                                                                                              |  |                                 |        |                               |  
|Basic earnings per common share                                                               |  | $                               | 0.005  |                               | $
|                                                                                              |  |                                 |        |                               |  
|DILUTED EARNINGS                                                                              |  |                                 |        |                               |  
|Net income available to common shareholders                                                   |  | $                               | 107    |                               | $
|Preferred stock dividends                                                                     |  |                                 |       | *                             |  
|                                                                                              |  |                                 |        |                               |  
|Net income available to common shareholders plus assumed conversion                           |  | $                               | 107    |                               | $
|                                                                                              |  |                                 |        |                               |  
|Weighted average number of common shares                                                      |  |                                 | 21,736 |                               |  
|Common stock equivalent shares representing assumed conversions of preferred stock            |  |                                 |       | *                             |  
|Common stock equivalent shares representing shares issuable upon exercise of of stock options |  |                                 |       |                               |  
|                                                                                              |  |                                 |        |                               |  
|Weighted average number of shares used in calculation of diluted earnings per common share    |  |                                 | 21,736 |                               |  
|                                                                                              |  |                                 |        |                               |  
|Diluted earnings per common share                                                             |  | $                               | 0.005  |                               | $
|                                                                                              |  |                                 |        |                               |  

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* Not applicable as effect would be
anti-dilutive.

|NOTE 4: | In September 2002, the Company reached a settlement with a subcontractor on two East Coast energy projects.  Under the terms of the settlement, the Company agreed to pay the
monthly amounts over time via (i) monthly payments of $20,000 per month for the first 12 months, which payments escalate to $30,000 per month for the next 12 months and to $40,000 per month thereafter; and (ii) payment to the subcontractor of fees
that otherwise would be payable to the Company on another East Coast energy project implemented by the Company until the entire balance is paid. The amount owed by the Company to the subcontractor
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|                                                                               | can increase by an amount equal to any amounts paid by the subcontractor to the surety in settlement of or pursuant to a final, non-appealable order for claims made against a
payment and performance bond issued by the surety on one of the projects, or for which the Company is adjudicated liable to the subcontractor pursuant to a final, non-appealable order.  The Company has recorded the full amount of this potential
increase as accounts payable as of  December  31, 2002.  The amount owed by the Company accrues interest at the rate of 8 percent per annum but accrued interest is payable only upon an uncured default.  The Company has recorded
no accrued interest obligations related to this settlement.  In the event the amount owed is paid in accordance with the terms of the settlement, all accrued interest is forgiven. As a result of this settlement, the Company has recorded the
amounts due under this settlement as a note payable and has allocated this debt between long-term and current liabilities based on an estimated repayment schedule. Amounts classified as current and long-term as of December 31, 2002, were $600,000
and $431,000, respectively.                                                                             
|------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|NOTE 5:                                                                        | On September 30, 2002, the Company sold its rights to certain excess revenues under an Energy Services Agreement for $650,000 to one of its customers.  Under the Energy
Services Agreement, the Company provided certain services to the customer, which included administrative services and operational and maintenance services.  Net revenues collected from the project after all expenses were paid were distributed
between the Company and the customer.  In exchange for $650,000, paid by the customer to the Company, the Company relinquished its right to its share of the remaining revenues.  The purchase price was determined based on an analysis of the
present value of the Companys future share of the remaining revenues to be earned under the Energy Services Agreement, which was to terminate in or about 2019.  The Company no longer has any further obligations under the Energy Services
Agreement.                                                                                                                                                                                                                                                                                                                                                    
|                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|NOTE 6:                                                                        | In October 2002, the Company executed an agreement with an unrelated third party for the purchase and sale of certain assets of Energy Nexus Group, Inc. (ENG), a
wholly-owned subsidiary.  The assets sold consisted of a significant portion of ENGs in-process and potential new consulting contracts and certain office equipment used by ENG.  For ENGs remaining consulting contracts, the
Company and ENG will continue to retain certain key personnel, or subcontract with the third party consultants, to complete the remaining backlog of open contracts.  Management has ceased all ENG expenditures, such as business development,
which are not directly involved with the completion of the backlog.  Management plans to cease all operations of ENG at such time as the backlog has been completed, which is anticipated by the end of the fiscal year ended June 30, 2003. The
Company recognized $145,000 in revenues from the sale of the assets of ENG during the quarter ended December 31, 2002.  Proceeds from the sales have been used to pay the outstanding debts of ENG and to recover cash invested by the Company in
ENG.  Management has determined there were no costs that need to be accrued as of December 31, 2002, with respect to this event.
|                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Item 2.            Managements Discussion and Analysis or Plan of Operations.

7



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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, 2002. 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.

Overview

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 power supply 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 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.  The Company also provides professional consulting services in areas related to customer energy assessments. It is the Companys mission to help customers save money through independent energy solutions.

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 negative working capital of $7,703,629 and a
stockholders deficit of $8,314,000 as of June 30, 2000.  These losses resulted primarily from a series of acquisitions, discussed more fully below and in the Companys Form 10-KSB filings, made by the Company from approximately 1995
to 1998.  As a result, the Company has experienced significant financial pressure from creditors during the past two and a half years.  Management has responded by taking actions to re-focus the Company on its core operations, reduce
operating expenditures and

8



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sell or divest non-core operating assets. The Company has also generated cash and income by selling entitlements to future cash flows associated with energy projects
managed by the Company.  The actions taken have had a positive impact on the Companys financial position to date, and the Company so far has been successful in working with creditors to avoid any serious disruption in operations. 
However, the Company still remains in serious financial condition, as delinquent trade debt totaled $2,716,000, and past due utility incentive sharing to customers totaled $2,114,000 as of December 31, 2002.  As long as the Company remains
significantly delinquent in repaying these past due debts, the possibility of a bankruptcy filing exists, but the Company does not currently anticipate initiating a bankruptcy filing.  The Companys negative net worth is $4,709,000 and its
working capital deficit is $4,651,000 as of December 31, 2002.

Managements goal is to continue to improve the financial position of the Company and eventually restore the Company to financial
health.  Managements plan is to remain dedicated to the Companys core business, expense control, continued selling of cash flow entitlements and debt settlements at less than face value.  These actions, it is believed, will
achieve the sustained profitable operations necessary to restore the Companys financial health.  The following provides a more detailed discussion of the Companys background and financial condition and should be read in conjunction
with Companys Form 10-KSB for the fiscal year ended June 30, 2002.

As of June 30, 2002, the Companys auditors issued a qualified opinion subject to the Companys ability to
continue as a going concern. The going concern issues are the result of previous operating losses, negative working capital and negative shareholders equity. See the Liquidity and Capital Resources discussion below for details of
the Companys plan for dealing with these issues.

On July 1, 2001, the Company activated ENG, which consolidated the Companys continuing consulting services business.  The
Company owns 100 percent of the issued and outstanding common stock of ENG. As of July 1, 2001, the Company transferred all of its consulting business unit personnel and related consulting projects backlog to ENG.  During the fiscal year ended
June 30, 2002, ENG generated $1,679,000 in consulting revenues and $168,000 in operating losses.  As a result, the Company decided in September  2002, to sell and/or wind-down the operations of ENG. As part of this process, the Company and
ENG executed an asset purchase agreement on October 30, 2002, with an unrelated third party for the purchase and sale of certain of ENGs assets. The assets sold consisted of a significant portion of ENGs in-process and potential new
consulting contracts and certain office equipment used by ENG.  The Company expects to recognize between $200,000 and $225,000 in income between November of 2002 and April of 2003 from this transaction as title to the contracts and equipment is
transferred to the purchasing party.  The Company recognized $145,000 in revenue from this transaction in the quarter ended December 31, 2002.

In October 1997, the Company acquired Westar
Business Services, Inc. (WBS), an indirect wholly-owned subsidiary of Westar Energy, Inc. (fka Western Resources, Inc.) (Westar Energy) (NYSE:WR). As part of the transaction, WBS was renamed Onsite Business Services, Inc.,
which subsequently changed its name to Onsite Energy Services, Inc. (OES).  Since February 2000, OES focused primarily on providing industrial water services.  In December 2001, the Company sold substantially all of the
operating assets in OES, which effectively ceased all operations in the subsidiary for the Company.  This discontinued operation generated $88,000 in operating income for the year ended June 30, 2002.  The Company recognized a gain of
$68,000 from the sale of OESs assets.  The assets of OES were sold to an affiliated company of a stockholder for $125,000.  The Company has no further contractual requirements to provide

9



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further services as result of this transaction.  This sale was accounted for in accordance with SFAS No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets.

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). SYCOM LLC was also an ESCO with customers primarily on the East Coast 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 since that date. 
The Company continues to maintain its subsidiary, SO Corporation, for the purpose of completing several long-term construction projects 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 by SO Corporation to develop any new 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 Designations 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.
(Westar Industries) owns all of the Series C Stock.  The Company remains delinquent on the July 15, 1999, dividend (payable in 15,823 shares of Series C Stock, valued at $1,661), and cash dividends of $972,000 payable from April 15,
2000 to January 15, 2003.  The total cash value of dividends in arrears as of December 31, 2002, was $891,000. While the Company has been unable to pay 13 quarterly dividends, as of the date of this quarterly report, Westar Industries 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
expenses since July 2000. The Company has focused itself back on its core business of being an energy services company with primary emphasis in western U.S. markets.

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

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Results of Operations.

Three months ended December 31, 2002 compared to the three months ended December 31,
2001

Revenues for the three month period ended December 31, 2002 were $1,411,000, compared to $2,583,000 for the three month period ended December 31, 2001, a decrease of $1,172,000, or 45
percent.  This decrease was due primarily to reduced backlog for energy projects resulting from a decrease in new energy projects during the six-month period ended December 31, 2002.  The Company is continuing to develop new energy
efficiency project opportunities in its efforts to replenish its backlog of energy efficiency projects.

Cost of revenues for the three months ended December 31, 2002, was $703,000 compared to
$1,347,000 for the three months ended December 31, 2001, a decrease of  $644,000, or 48 percent. The decrease was also primarily attributable to slower energy project activity mentioned above.

Gross profit for the three months ended December 31, 2002, was $708,000 (50 percent of revenues), compared to $1,236,000 (48 percent of revenues) for the three months ended December 31, 2001, a decrease of $533,000. Although
the Companys gross margin can vary significantly from quarter to quarter, the relative consistency in the margin rates was caused by a similar revenue mix of high margin fee and incentive revenue compared to lower margin energy project
revenues between the two quarters.

Selling, general and administrative (SG&A) expense was
$669,000 for the three months ended December 31, 2002, compared to $804,000 for the same three months last year, a decrease of $135,000.  The decrease is primarily attributable to reductions in personnel and other cost cutting measures taken
over the past nine months to the Companys operating expenses.

Depreciation expense for the three month period ended December 31, 2002 was $6,000 compared to $8,000 for the same three months in
the prior year, a decrease of $2,000.

Compensation expense under the Companys variable incentive stock option plan was $0 for the three months ended December 31, 2002 compared to negative
$63,000 for the same period in the prior year.  This resulted from a reduction in the decrease in stock price for the quarter ended December 31, 2002 compared to the same quarter in the prior year.

Gain from extinguishment of liabilities at less than face value for the three months ended December 31, 2002, was $47,000 compared to $123,000 for the same period in 2001.  The decrease was due primarily to a decrease in
the settlement activity of the Companys remaining past due trade debts.  The Company is continuing in its efforts to retire its past due trade debt at less than face value.

Interest and
other expense was $27,000 for the three month period ended December 31, 2002, compared to expense of $21,000 for the same three months in 2001.

Net income from operations for the three months ended
December 31, 2002, was $53,000 compared to $589,000 for the same period in 2001.  Although cost cutting efforts partially helped to mitigate the reduction in operating income, lower revenues that resulted in lower gross profits in the current
period were the primary cause for this result.

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Income from discontinued operations increased to $146,000 for the three months ended December 31, 2002, from $90,000 for three months ended December 31, 2001.  The increase
was associated with the sale of ENG consulting contracts to a third party, which is discussed more fully in Note 6 of the consolidated financial statements contained herein.

Net income for the three
months ended December 31, 2002, was $188,000, which was $0.005 per fully diluted share.  Net income for the three months ended December 31, 2001, was $675,000, or $0.022 per fully diluted share. The decrease was primarily due to a decrease in
revenues and corresponding net income from operations as discussed more fully above.

Six months ended December 31, 2002 compared to the six months ended December 31, 2001

Revenues for the six month period ended December 31, 2002 were $3,165,000, compared to $5,620,000 for the six month period ended December 31, 2001, a decrease of $2,455,000, or 44 percent.  This decrease was due
primarily to reduced backlog for energy projects resulting from a decrease in new energy projects during the six-month period ended December 31, 2002.  Of the $3,165,000 in revenues, $535,000 relates to a one-time sale of rights to receive
future cash flows associated with an energy project operated by the Company on the East Coast.  This is primarily the result of the Companys continuing efforts to sell entitlements to future positive cash flows from energy efficiency
projects.

Cost of revenues for the six months ended December 31, 2002, was $1,531,000 compared to $3,640,000 for the six months ended December 31, 2001, a decrease of  $2,109,000, or 58
percent. The decrease was also primarily attributable to slower energy project activity described above.

Gross profit for the six months ended December 31, 2002, was $1,634,000 (52 percent of
revenues), compared to $1,980,000 (35 percent of revenues) for the six months ended December 31, 2001, a decrease of $346,000.  This percentage increase in gross margins was primarily attributable to the one-time sale in the quarter ended
September 30, 2002, of rights to receive future cash flows associated with an energy project operated by the Company on the East Coast.  The Company generated $650,000 in cash from the transaction and recorded $535,000 in net revenues, all of
which was gross profit.  But for this one-time sale of cash flow rights and gain from extinguishment of liabilities of $260,000 related to the settlement of a past due trade debt, the Company would have recognized net loss from operations of
$354,000.

SG&A expense was $1,416,000 for the six months ended December 31, 2002, compared to $1,467,000 for the corresponding period last year, a decrease of $53,000.  Despite significant
increases in insurance and legal costs, cost reduction measures taken during past four months have reduced personnel costs significantly.  The Company plans to continue to look for opportunities to further reduce operating costs.

Depreciation expense for the six-month periods ended December 31, 2002 was $14,000 compared to $14,000 for the same six months in the prior year.

Compensation
expense under the Companys variable incentive stock option plan was $0 for the six months ended December 31, 2002 compared to negative $68,000 for the same period in the prior year.  This resulted from a reduction in the decrease in stock
price for the six-months ended December 31, 2002 compared to the same period in the prior year.

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Gain from extinguishment of liabilities at less than face value for the six months ended December 31, 2002, was $307,000 compared to $209,000 for the same period in 2001. 
The increase was due primarily to the settlement of a past due debt with a subcontractor in August of 2002 on a project completed in calendar year 1999. This reflects the Companys continuing efforts to retire its past due trade debt at less
than face value.

Other expense was $49,000 for the six month period ended December 31, 2002, compared to  $59,000 for the same six months in 2001.  The decrease was due to reductions in
interest bearing notes payable on the Companys balance sheet between the quarters ended December 31, 2002 and 2001.

Net income from operations for the six months ended December 31, 2002, was
$441,000 compared to $711,000 for the same period in 2001.  Reductions in gross profit resulting from lower revenues related to energy efficiency projects was the primary reason for this result.

Income from discontinued operations increased to $56,000 for the six months ended December 31, 2002, from $52,000 for six months ended December 31, 2001.  The income recorded in 2002 was attributable primarily to the sale
of a majority of the ENG consulting contracts in November of 2002, and the income recorded in 2001 was primarily related to the sale of substantially all of the assets of OES in December of 2001.  These sales have been part of the
Companys ongoing plans to discontinue unprofitable and non-core operation.

Net income for the six months ended December 31, 2002, was $497,000, which was $0.015 per fully diluted share. 
Net income for the six months ended December 31, 2001, was $763,000, or $0.025 per fully diluted share. The decrease resulted primarily from the reduction in revenues and net income from operations as discussed above.

Liquidity and Capital Resources

The Companys cash and cash equivalents were $51,000 as of December 31, 2002, compared to $8,000 at June 30, 2002. 
Working capital was negative $4,651,000 as of December 31, 2002, compared to negative $5,531,000 at June 30, 2002, an improvement in negative working capital of $880,000.  This improvement was the result of the positive contribution to working
capital from net income achieved for the six months ended December 31, 2002.  An additional contributor was a settlement in August 2002 of trade debt to a subcontractor (see Note 4) resulting in payments in installments over time.  This
has enabled the Company to classify a portion of the total debt into long-term debt on its consolidated balance sheet.  Prior to this settlement, the Company recorded the entire balance as a current liability.

Cash flow provided by operating activities was $236,000 for the six months ended December 31, 2002, compared to cash provided by operating activities of $241,000 for the same six month period in the prior year. Sources of cash
were related to increases in accrued expenses and reductions in accounts receivable.  Two significant uses of cash included a $705,000 reduction in accounts payable and gains on extinguishments of debt, which are recorded as non-cash income on
the Companys condensed consolidated statement of income.

For the past several years, the Company has suffered from serious cash flow issues. As a result, the Company is delinquent in the
remittance to customers of shared utility incentive payments otherwise due

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to customers in the amount of $2,114,000 as of December 31, 2002, an increase of $242,000 since June 30, 2002.  This amount is recorded in accrued expenses in the balance
sheet.  Management has been focusing attention on a plan to become current with the Companys customers in remitting to them their contractual share of the incentive payments.  The Company continues to apply the majority of its cash
inflows for operating expenses and toward reducing trade debts in order to minimize disruption to the operations of the Company.  In certain cases, the Company has negotiated with its customers to repay past due incentive sharing obligations or
limit the amount of future obligations through installment payment arrangements and other measures.  The Company plans to repay these amounts from future operating profits and sales of its interests in future revenues from projects.  The
Company has generally experienced decreases in the volume of business or cessation of business conducted with customers with whom the Company has become delinquent in its incentive sharing obligations.  While this situation has negatively
impacted business relations with some but not all of the Companys existing customers, the Company has generated new business with certain existing customers and with new customers because the Company is implementing certain measures designed
to eliminate or minimize any delinquency issues, including by restructuring the payment of incentive revenues so that payments are made directly to customers.  Whether the Company will continue to be delinquent in remitting utility incentive
payments due to customers will depend on whether the Company can generate sufficient cash flows from operating profits and the sale of assets, or can secure an alternative source of financing sufficient to fully satisfy the payment of these
liabilities.

Cash flow provided by investing activities was $105,000 for the six months ended December 31, 2002, compared to cash used of $42,000 for the corresponding period in 2001, an increase of
$147,000. The positive cash flow was the result of sales and retirements of consulting contracts, property and equipment associated primarily with the wind-down of ENG.  Cash invested in the prior year was associated with capital equipment
purchased in connection with start-up operations of ENG in 2001.  Additionally, the Company made loans to two officers of the Company in August 2001 totaling $101,000, in connection with the exercise of incentive stock options held by those
officers. A total of 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% per annum payable annually, and mature upon the sale of the exercised option shares or August 1, 2006, whichever occurs earlier and has been recorded as a reduction of stockholders equity.

Cash flow used by financing activities was $298,000 for the six months ended December 31, 2002, compared to cash flows provided by financing activities of $389,000 for the same six month period last year.  The Company
repaid $298,000 on notes payable in the six months ended December 31, 2002 compared to repayments of $92,000 in the same period of the prior year.  The Company also borrowed additional cash in the six months ended December 31, 2001 through
re-financings of future Company utility incentive cash flows associated with energy projects managed by the Company.  Repayments in the six months ended December 31, 2001 were partially offset by proceeds from issuance of common
stock.

The Company ended its fiscal year ended June 30, 2002, with a stockholders deficit of $5,207,000 and negative working capital of $5,531,000 but has continued to make progress in its
efforts to return to financial stability.  Continued profitability in the six months ended December 31, 2002, enabled the Company to reduce its working capital deficit to $4,651,000 and to reduce its stockholders deficit to $4,709,000 at
December 31, 2002.  The Company achieved these improvements by continuing to achieve profitable operations through reductions in expenses, settlements of trade debts, and sales of future cash flow entitlements associated with energy
projects.  Further steps taken during the six months ended December 31, 2002 included the discontinuation of ENG, which further enhanced the Companys ability to generate future operating profits and cash flow.  During the six months
ended December 31, 2002, the

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Company, as part of its ongoing efforts to settle past due trade debts, settled matters with two major trade creditors, as previously disclosed in the Company Form 10-KSB for
the fiscal year ended June 30, 2002. These settlements enabled the Company to reduce its trade debt by reducing the total amounts payable to the creditors and allowing the Company to make payments of the compromised amounts over time, thus improving
the Companys working capital position. As a result, the Company is continuing in its efforts toward improving its financial position. Management believes that continuing efforts to minimize cost as well as actions to sell or finance its
remaining cash flow entitlements will improve the Companys ability to continue as a going concern.

Although the Company has continued to operate and improve its financial position since June
2000, the Company will have to continue to produce operating profits, keep its trade creditors from disrupting operations, settle past debt and liquidate energy efficiency project assets to continue to improve its financial health.  Significant
risk still exists regarding the future financial viability of the Company.  Additional financing through the sale of securities may have an ownership dilution effect on existing stockholders.

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

Critical Accounting Policies
and Estimates.The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements
as well as revenues and expenses during the reported periods.

Revenues on development and construction of energy projects are recorded using the percentage of completion method. Under this method,
the revenue recognized is that portion of the total contract price that the cost expended to date bears to the anticipated final total costs based on current estimates of the costs to complete the project. The implementation period for a typical
project is approximately three to six months. The implementation period for larger projects (those in excess of $2,000,000) can range from six to 24 months.  If the total estimated costs to complete a project exceed the total contract amount,
thereby indicating a loss, the entire anticipated loss is recognized in the current period.

In addition to the installation of energy savings measures at a customer site, the Company is generally
engaged to provide measurement and verification (M&V) services of actual savings as compared to expected or estimated savings identified in the engineering or pre-implementation stages of the contract. This service typically is
performed on behalf of the customer for the purpose of collecting utility incentive funds associated with energy savings achieved from the energy saving measures.  The utility incentive funds collected are either retained by the customer,
retained by the Company, or shared between the parties. The Company also performs M&V as a separate service for which it is compensated as services are rendered. Revenue related to the M&V services are recognized as the services are
performed. Revenue arising from the Companys share of utility incentive payments is recognized in the period that actual savings are achieved.

Effective December 31, 2002, the FASB issued SFAS
No. 148 Accounting for Stock-Based Compensation-Transition and Disclosure.  Under this statement, the Company can elect to include the cost of options issued under its incentive stock option plan as measured by the fair value
method or the intrinsic value method in its calculation of net income.  In the event the Company continues to use the intrinsic

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value method to measure the cost of incentive stock options, the Company must provide a footnote disclosure of the pro-forma effect on net income.  The Company plans to
continue to use the intrinsic value method and to provide supplemental pro-forma disclosures in the footnotes of its interim and annual financial statements.  The Company plans to make the required disclosures in the third quarter of fiscal
year 2003 ending March 31, 2003.

Impact of Recently Issued Standards. In December 1999, the SEC released Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial
Statements. SAB 101 establishes guidelines in applying generally accepted accounting principles to the recognition of revenue in consolidated financial statements based on the following four criteria: persuasive evidence of an arrangement
exists; delivery has occurred or services have been rendered; the sellers price to the buyer is fixed or determinable; and collectibility is reasonably assured. SAB 101, as amended by SAB 101A, is effective no later than the first fiscal
quarter of the fiscal year beginning after December 15, 1999, except that registrants with fiscal years that begin between December 16, 1999, and March 15, 2000, may report any resulting change in accounting principle no later than their second
fiscal quarter of the fiscal year beginning after December 15, 1999. The adoption of SAB 101 did not have a material effect on the Companys financial position or, results of operations or cash flows.

On June 30, 2001, the FASB approved the issuance of SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets.  SFAS No. 141 states that all
business combinations should be accounted for using the purchase method of accounting making the use of the pooling-of-interest method prohibited.  SFAS No. 141 is effective for business combinations completed after June 30, 2001.  SFAS
No. 142 addresses the accounting for all purchased intangible assets, but not the accounting for internally developed intangible assets.  Goodwill will no longer be amortized and will be reviewed for impairment in accordance with SFAS No.
142.  SFAS No. 142 is effective for fiscal years beginning after December 15, 2001.  Early adoption is permitted for entities with fiscal years beginning after March 15, 2001.  The adoption of SFAS Nos. 141 and 142 has not had a
material effect on the Companys financial position, results of operations or cash flows.

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 as of July 1, 2001.  The adoption of SFAS No. 144 has not had a material effect on the Companys financial
position, results of operations or cash flows.

In June 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections.  This statement requires the classification of gains or losses from the extinguishments of debt to meet the criteria of APB Opinion No. 30, Reporting the Results of Operations  Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, before they can be classified as extraordinary in the income statement.  Those companies that use debt
extinguishments as a part of their risk management strategy are required to classify the gain or loss from extinguishments of debt as a part of operating income in the income statement.  The Company has adopted SFAS No. 145

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during the fiscal year ended June 30, 2002, and has reclassified its gains from the extinguishments of debt as a part of operating income as of June 30, 2002, and
2001.

In September 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities.  This statement addresses financial accounting and
reporting for costs associated with exit or disposal activities.  This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred.  The provisions of this
statement are effective for exit or disposal activities that are initiated after December 31, 2002.  Management is assessing the impact of this statement, but believes that there will be no material impact.

Effective December 31, 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based Compensation-Transition and Disclosure.  Under this statement, the Company can elect to include the cost of options
issued under its incentive stock option plan as measured by the fair value method or the intrinsic value method in its calculation of net income.  In the event the Company continues to use the intrinsic value method to measure the cost of
incentive stock options, the Company must provide a footnote disclosure of the pro-forma effect on net income.  The Company plans to continue to use the intrinsic value method and to provide supplemental pro-forma disclosures in the footnotes
of its interim and annual financial statements.  The Company plans to make the required disclosures in the third quarter of fiscal year 2003, ending March 31, 2003.

In November 2002, the FASB
issued FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.  This interpretation addresses the disclosures to be made by
a guarantor in its interim and annual financial statements about its obligations under guarantees.  This interpretation also clarifies the requirements related to the recognition of a liability by a guarantor at the inception of a guarantee for
the obligations the guarantor has undertaken in issuing that guarantee.  Management has assessed the impact of this interpretation and believes it has no material impact.

In January 2003, the
FASB issued FASB Interpretation No. 46. Consolidation of Variable Interest Entities.  This interpretation clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statement,
to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support
from other parties.  It further clarifies whether an entity shall be subject to consolidation according to the provisions of this interpretation, if by design, certain conditions exist.  Management is assessing the impact of this
Interpretation, but believes it will have no material impact.

Item 3.        Controls and Procedures.

Within the 90 days prior to the date of this Form 10-QSB, the Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys President and
Chief Executive Officer along with the Companys Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, the Companys President and Chief Executive Officer along with the Companys Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated subsidiaries) required to be included in this Form 10-QSB.

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There have been no significant changes in the Companys internal controls or in other factors that could significantly affect internal controls subsequent to the date the
Company carried out its evaluation.

Part II - Other Information

Item 1.        Legal
Proceedings.

As previously disclosed by the Company, in October 2002, the Court entered final judgment for $1,239,877 in favor of General Accident Insurance Company of America (General
Accident) and against the Company and other third parties (Superior Court of New Jersey, Law Division, Atlantic County). The final judgment amount includes amounts previously awarded to General Accident in June 2001 (partial summary judgment)
for amounts paid to subcontractors to the Company on one of its projects ($579,041), and in November 2001 for attorneys fees ($137,829). The Company and the other parties filed motions for reconsideration, objecting to both the amounts paid by
General Accident in February 2002 to Johnson Controls, Inc. (JCI), a subcontractor to the Company on one of its projects, in settlement of JCIs claim ($490,857) and additional attorney fees claimed by General Accident ($32,150).
Oral argument on the motions was heard in December 2002. The final judgment currently is enforceable against the Company pending the Courts ruling on the Companys motion for reconsideration. 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 - Not
Applicable.

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 13 quarterly dividends.  The total amount due as of the date of this report is $972,000.  See Part I, Item 2 Managements Discussion and Analysis or Plan of
Operationsfor 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 5, 2002. At the meeting, the stockholders elected Messrs. H. Tate Holt and Frank J. Mazanec as directors of the Company to hold office until the 2004 Annual Meeting of Stockholders, and until
their successors are elected and qualified. The stockholders also ratified the selection of Swenson Advisors, LLP, as the Companys independent auditors.

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

PROPOSAL NO. 1  ELECTION OF DIRECTORS



|Name of Director |  | Result  |  | Votes For  |  | Votes Withheld |  | Total      | 
|---------------- |  | ------- |  | ---------- |  | -------------- |  | ---------- | 
|                 |  |         |  |            |  |                |  |            | 
|H. Tate Holt     |  | ELECTED |  | 28,646,601 |  | 102,159        |  | 28,748,760 | 
|Frank J. Mazanec |  | ELECTED |  | 28,646,100 |  | 102,660        |  | 28,748,760 | 



PROPOSAL NO. 2  RATIFICATION OF
SELECTION OF SWENSON ADVISORS, LLP, AS INDEPENDENT AUDITORS

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|Proposal Result                                                      |  | Votes For  |  | Votes Against |  | Votes Withheld |  | Total      | 
|-------------------------------------------------------------------- |  | ---------- |  | ------------- |  | -------------- |  | ---------- | 
|                                                                     |  |            |  |               |  |                |  |            | 
|Selection of Swenson Advisors, LLP, as independent auditors RATIFIED |  | 28,688,824 |  | 33,909        |  | 26,207         |  | 28,748,940 | 
|                                                                     |  |            |  |               |  |                |  |            | 

Item 5.        Other Information.  On October
31, 2002 Frank J. Mazanec, Senior Vice President and a director, resigned as an officer of the Company.  Mr. Mazanec was primarily responsible for the development of energy project business in the Companys Southern California
region.  Mr. Mazanec continues to serve as a consultant and a director of the Company.

Item 6.        Exhibits and Reports on Form 8-K

|     | a)Exhibits                                                                                                                      
|---- | --------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                 
|99.1 | Certification of Chief Executive Officer and Chief Financial Officer                                                            
|     |                                                                                                                                 
|99.2 | Certification of Chief Executive Officer                                                                                        
|     |                                                                                                                                 
|99.3 | Certification of Chief Financial Officer                                                                                        
|     |                                                                                                                                 
|     | b)    Reports on Form 8-K                                                                                                       
|     |                                                                                                                                 
|     | Form 8-K filed October 15, 2002, regarding the sale of certain excess revenues under an Energy Services Agreement to a customer.
|     |                                                                                                                                 



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SIGNATURES

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

|                        |  | ONSITE ENERGY CORPORATION
|----------------------- |  | -------------------------
|                        |  |                          
|                        |  |                          
|Date: February 12, 2003 |  | By:                      
|                        |  |                          
|                        |  |                          
|                        |  |                          
|                        |  |                          
|                        |  |                          
|Date: February 12, 2003 |  | By:                      
|                        |  |                          
|                        |  |                          
|                        |  |                          
|                        |  |                          



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