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[UPDATE 4: OnLive confirmed that its assets have been sold to another company.]

[UPDATE 3: Endgadget reports that OnLive has laid off “at least 50 percent of the staff, according to our source’s numbers.” It also reports that the layoffs are a “move that apparently comes as OnLive is being purchased by an unknown party. Those being kept on have reportedly received offer letters from the new company.”

Our own Dean Takahashi is on the scene at OnLive’s Palo Alto, Calif., headquarters to learn more about the happenings. Dean’s report: Employees are still walking out, but they aren’t talking much.]

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[UPDATE 2: Kotaku is reporting that OnLive CEO Steve Perlman called an all-hands meeting this morning to announce that the company was filing for an alternative to bankruptcy. Kotaku wrote: “Perlman also said that the company as it stands now would cease to exist and that no one would be employed by OnLive. A subset of employees would be brought on to the company created from the remains of OnLive.”

Meanwhile, VentureBeat has received tips that OnLive staff can be seen exiting the Palo Alto offices carrying boxes and personal belongings. VentureBeat’s Dean Takahashi is headed there now to confirm in person.

[UPDATE 1: OnLive’s head of corporate communications Brian Jaquet has replied to GamesBeat with the following statement when asked if the company was shutting down (emphasis ours):

We don’t respond to rumors but of course not.

The exciting news is that the first VIZIO Co-Stars (Google TV stream players) with the OnLive app built-in have just arrived in customer homes, and our second of three ‘Indie Giveaway Weekends’ is going on now. OnLive users can get a free copy of the award-winning games Space Pirates and Zombies and SpaceChem (more details on our blog here: blog.onlive.com).

It’s a bit unclear what’s really going on, however. GamesBeat is hearing secondhand reports that OnLive employees are going through exit interviews right now. OnLive says it’s still in business, so it’s possible the company is going through some major layoffs or looking at a potential buyout and rebranding that it wasn’t ready to announce just yet. We’ll keep you posted as more information rolls in.]

Original story: A few minutes ago, InXile’s Brian Fargo (of Wasteland fame) Tweeted that ambitious cloud-gaming company OnLive would be closing its doors, according to an employee email.

We followed up with Fargo, who passed along this email (sans the employee’s identity):

I wanted to send a note that by the end of the day today, OnLive as an entity will no longer exist.  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.

It has been an absolute pleasure working with you and I’m sure our path with cross again.

This news is especially surprising considering that OnLive was very recently announced to be partnering with Ouya, the crowdfunded free-to-play console that recently made a splash on Kickstarter. GamesBeat has followed up with OnLive for clarification and will update the story as soon as we hear back.

About OnLive:

First announced in 2009 and launched on June 17, 2010, the patented OnLive cloud gaming service has expanded over the years to support Windows PC, Mac OS, iOS, and Android platforms. Over 50 major game publishers and over 300 titles are featured on the OnLive streaming service.

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