Factory 5 had a deal with Sony for about 20mill and 3 games. Development of Lair was more expensive and took longer than expected, using about 12million on just the first game. It was also kinda rushed out the door leaving you with an unpolished as most people seem to refer to it as. After Lair had less than expected sales results, Sony cancelled the deal, which left Factor 5 with no active income and no projects with set publishers, atleast nothing that was gonna cover the mass amount of people hired on to work on the PS3 projects.
Enter Brash Ent. and whatever Factor 5 was doing for them, like Superman and a few other games. Once Brash Ent, went under, that left Factor 5 with unfinished, under funded projects and once again, no active income to pay all those people with. Thats when rumors of people going un-paid and layoffs started surfacing. There were several projects left on the table when Brash went down a F5 had a lot of money invested in those titles. This left them in a very bad predicament where they were once again scrambling around looking for a publisher to help them fund these games to get them out the door. Unfortunately, a company that can't pay it people looks desperate enough to turn out any piece of **** it can to make money and that looks like a risky development to attach yourself to. No publishers took the bait.
Factor 5 GbmH then get re-opened. Factor 5 GmbH was the original Factor 5 before they relocated to San Rafael. Factor 5 GmbH apparently went dark up until late last year when it opened it doors again after Factor 5 LLC, (now Factor 5 Inc.) started showing signs of unrecoverable financial trouble. All IP's and trademarks have just recently been transferred over from Factor 5 Inc. to Factor 5 GmbH, which is now acting almost like a holding company while they sort out the development issues which seem to have continued uninterrupted. Moving all assets to their "holding company" seems to have protected them from any negative financial obligations, and allows them to keep operating at the lowest possible overhead until they can get active projects sorted out.
It is sort of rumored that "key" "ex"-Factor 5 Inc employees have already relocated and started a new development house called Whiteharvest LLC. It is unknown what they are working on or if it is still working under Factor 4 GmbH, but it is known that Factor 5 does still have active development on an unannounced Wii game which might be revealed as soon as E3, but more likely at GC in Liepzig.
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What it all boils down to is that Lair was a big project that Factor 5 took a big gamble on, it didn't pay off, and that led to circumstances that put them in even tighter situations which eventually bankrupted the company leaving them in the state they are today.