UPDATE: Since this story was published, OnLive has, in fact, been sold to OnLive. 'What?!' Yes, seriously. For more details, read this article. Original story follows:

Reports have hit the web suggesting cloud gaming specialist OnLive is laying off staff as the company prepares for bankruptcy.

Though there has been no official confirmation from the firm, talk was kicked off when Kotaku spotted a tweet by InXile Entertainment CEO Brian Fargo, who stated he'd received an email declaring that "OnLive is closed as of today!".

Gamasutra has gone on to claim it "can confirm" that the rumours are true, though the site also carries a statement by OnLive itself declaring that the service is "just fine."

Alive and kicking?

Either way, further evidence of the company's apparent closure has come via IDG News Service senior correspondent Martyn Williams, who took to Twitter from outside OnLive's offices account to claim that he'd spotted "three people walk out of OnLive with leaving boxes."

Early speculation suggests the firm may look to continue the game streaming platform running in some form, though talk of forthcoming bankruptcy would seem to scupper such a rosy outlook.

OnLive's apparent troubles come a matter of months after its main rival in the cloud gaming space – Gaikai – was acquired by Sony for $380 million.

Some commentators had expected one of Sony's competitors – namely Microsoft or Apple – to make a similar move for OnLive, though such a deal never materialised.

TechCrunch, however, believes any staff layoff could be in preparation for a buyout, claiming that OnLive founder and CEO Steve Perlman is leaving the company and is "screwing the employees" in the process.

Next steps

Nevertheless, the ramifications of any OnLive downfall, could be both wide and deep.

The company had already vowed to support forthcoming Android-based console Ouya from launch – a move seen by many as a valuable sign of confidence in the platform.

OnLive has also recently expanded from its bases in the UK and the US into Belgium, while the company also has an agreement with LG to deploy its technology within LG's range of smart TVs.

"Plenty of people said OnLive could never work - we've been there too and we've also built our own hardware console platform," OnLive general manager Bruce Grove told us at the start of August.

"OnLive's continuing to do what it set out to do from day one, bring a cross platform full gaming experience across a wide range of devices and we continue to build on that with every new device that supports us."

[source: CNET]