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OnLive denies reports it is closing down UPDATE: Will operate under unnamed firm

Curious reports emerged last week that OnLive had fired its entire staff and was shutting down the service. A spokeswoman has moved to quash the stories however, claiming the company was not closing and that "OnLive is just fine."

Reports of OnLive's demise emerged when game designer Brian Fargo tweeted that he "just received an email that OnLive is closed as of today!" Fargo then posted a copy of the email he received from a company employee.

"I wanted to send a note that by the end of the day today, OnLive as an entity will no longer exist," the email reads. "Unfortunately, my job and everyone else's was included. A new company will be formed and the management of the company will be in contact with you about the current initiatives in place, including the titles that will remain on the service."

Shortly after his tweet hit the Web, Fargo said he received a recall message from the OnLive employee who had sent the message. "I hope their closing is not true for many reasons. I have emails and calls into people I know there but no word back yet," Fargo wrote.

When asked about the reports, an OnLive spokeswoman initially said the company does not comment on speculation, but in a followup email she conceded that the company was not going out of business.

The spokeswoman went on to say that the real "exciting news" is that the Vizio Co-Stars, Google TV streaming players, are now shipping to customers, while OnLive is also offering a free copy of Space Pirates and Zombies and SpaceChem.

OnLive might not be shutting down, but the layoff rumours apparently have some merit. OnLive employees have been spotted clearing out their things and carrying boxes to their cars, All Things D reported.

An employee who was among those laid off, but wished to remain anonymous, took issue with OnLive's suggestion that many of the company's employees would remain. They said that "definitely over half" of the company's 150 to 180 employees were unceremoniously fired during an all-hands meeting on Friday morning.

Many of those in attendance thought that company execs would simply be announcing that OnLive had been acquired, but were shocked to hear that the firm had opted for an "assignment for the benefit of creditors", or ABC, whereby OnLive's assets are transferred to a third party in a bid to avoid bankruptcy.

The employee said that OnLive CEO and founder Steve Perlman went through a "song and dance," complete with PowerPoint presentation, to explain how an ABC worked. Unfortunately, it included a number of layoffs. Those who got pink slips did not receive severance packages - just payment for the days worked this week - or any shares. Workers with funds in flexible spending accounts were also out of luck.

UPDATE: OnLive has since confirmed that the assets of the company have been acquired "into a newly formed company."

The online gaming firm did not provide details about who purchased OnLive, except to say that the new firm is "backed by substantial funding."

The new OnLive "will continue to operate the OnLive Game and Desktop services, as well as support all of OnLive's apps and devices, as well as game, productivity and enterprise partnerships," a spokeswoman said. "All previously announced products and services, including those in the works, will continue and there is no expected interruption of any OnLive services."

The firm said that the "new company is hiring a large percentage of OnLive, Inc.'s staff across all departments and plans to continue to hire substantially more people, including additional OnLive employees."

A spokeswoman, however, declined to comment on how many layoffs there were this afternoon except to say that the "management team is intact."

"We apologize that we were unable to comment on this transaction until it completed, and were limited to reporting on news related to OnLive's businesses," the company added.