The cloud gaming service OnLive was in a pretty bad way in the lead up to its acquisition. There were mounting debts heading for the $20 million mark and disappointed investors like HTC were not about to pour more money in. In the end OnLive took a bankruptcy alternative that allowed it to liquidate its assets. In effect there were mass lay-offs and the assets were sold to venture capitalist Gary Lauder for $4.8 million, according to Mercury News.

He was able to set up a new company and hire back some of the former employees. OnLive was able to write-off a lot of debt as a consequence leaving investors and creditors out of pocket, but allowing the company to continue. A statement from the new OnLive has suggested that cash flow was the problem, rather than a flawed business model.

That assertion may prove to be true. Rival service Gaikai was acquired by Sony for $380 million which will make the OnLive deal look like a real bargain if the company can turn things around. The cloud gaming space still has a lot of potential and other companies like CiiNOW are also aiming to bring the latest games to our Android devices.

You have to feel sorry for the early investors, though, and even more so for the creditors who will be looking at around 26 cents on the dollar.

Anyone tried out the OnLive Android app? If you have then post a comment and let us know what you think. Is cloud gaming the future for Android?