The OnLive reorganization and layoffs last week were bizarre. The company issued no official statements at the time of the incident, leaving it to Twitter to break the story and allowing confusion and seemingly conflicting reports to spread. What actually happened is, perhaps even more strange than the rumors first suggested.

What happened, in short, is that OnLive filed for ABC bankruptcy, which gave the company some protection from its debtors and investors. It then laid off its entire staff and transferred its assets to a new company (also named OnLive) through an intermediary. This left investors in the old OnLive, including HTC, holding the bag.

The reason for the restructuring remained a mystery until yesterday, as the company was widely believed to have been solvent. The San Jose Mercury News managed to get an interview with the intermediaries to the transaction, and it turns out that OnLive was in severe debt. Joel Weinberg, CEO of Insolvency Services Group (ISG) told the Mercury News that the company owed $30-40$ million to creditors.

Weinberg stated that OnLive was in “dire straits” and only days away from going under when the insolvency process commenced last Friday. ISG transferred OnLive’s assets to the new OnLive, which was funded by the Lauder Partners, a venture capitalist company. Weinberg told the Mercury News that he only expects to be able to pay the old OnLIve’s creditors 5 or 10 cents per dollar of OnLive debt owed.