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OnLive was deep in debt, running out of cash, and 'had days to live'

The trustee evaluating the online gaming company's finances tells the San Jose Mercury News that the company had $30 million to $40 million in debt and little cash to pay.

Before a major shakeup that resulted in OnLive firing its entire staff last week, the online gaming company was in greater financial trouble than was previously known.

The Palo Alto, Calif.-based company owed creditors between $30 million and $40 million, with little cash on the books to pay them, and was facing imminent shutdown, according to the San Jose Mercury News.

"It was a company that was in dire straits. It only had days to live in terms of cash flow and the like," Joel Weinberg, CEO of Insolvency Services Group, told the the Merc's Troy Wolverton. "Something had to be done immediately, or there would have been a hard shutdown, which would have been a disaster."

The Insolvency Services Group, which is serving as a sort of bankruptcy trustee for OnLive, was brought in after the cloud gaming company's board of directors decided to restructure the company under an "assignment for the benefit of creditors." The transaction is an alternative to bankruptcy that expedites the closure of the troubled company.

The company's assets, including its technology and intellectual property, were transferred to the new company. However, no shares or employees were allowed to transfer.

The new company will continue to operate under the OnLive name.

Insolvency Services Group is still assessing OnLive's financial situation but expects the company's creditors will receive only about 5 to 10 cents on the dollar of what they are owed. One of the investors not likely to see a penny is HTC, which invested $40 million in the company in February 2011. The embattled handset maker revealed earlier this week that it would be forced to take a loss in the same amount on the investment.