3D Realms has shot down reports that the studio has closed, although company representatives have confirmed staff layoffs at the Duke Nukem developer.

"Despite rumors and statements to the contrary, 3D Realms (3DR) has not closed and is not closing," reads a 3D Realms statement posted on Gamasutra.

"3DR retains ownership of the Duke Nukem franchise. Due to lack of funding, however, we are saddened to confirm that we let the Duke Nukem Forever (DNF) development team go on May 6, while we regroup as a company. While 3DR is a much smaller studio now, we will continue to operate as a company and continue to licence and co-create games based upon the Duke Nukem franchise."

The statement comes shortly after the studio’s closure appeared to be all but confirmed by webmaster Joe Siegler.

It was then revealed that publisher Take-Two was to sue the studio for its failure to complete Duke Nukem Forever.

“As some of you may know, Take-Two filed a lawsuit last week containing various accusations and claims against 3DR and the uncompleted DNF game," continued the 3D Realms statement. "Take-Two never paid 3DR advances or any signing bonus or any other funds related to DNF, up until July 2008, at which time they paid $2.5m in connection with another agreement for an unannounced game.

“This is the sum total Take-Two has paid 3DR in connection with DNF. Take-Two claims that they paid $12m to GT Interactive/Infogrames to acquire the publishing rights for the DNF game. To be clear, 3DR was not a party to that transaction and did not receive any money from it. When the DNF game was originally signed with GT Interactive in 1998, GT paid 3DR a $400,000 signing bonus. Up until July 2008, this was the only publisher money we received for the DNF game. Meanwhile, 3DR put over $20m into the production of DNF.”

The statement added that Take-Two retains publishing rights for DNF, “although 3DR retains certain rights to sell the game directly to the public.” It said that late last year the studio began negotiations with Take-Two with the aim of securing additional funding to complete DNF while hitting “mutually-agreed” development milestones.

“Take-Two was well aware that 3DR needed the funding to continue the DNF game development. Suddenly, after months of negotiations, Take-Two materially changed the parameters of the proposed funding agreement. 3DR informed Take-Two that it could not financially afford the changes Take-Two was suggesting and would be forced to release the team if an agreement was not reached.”

Take-Two also reportedly made a proposal to acquire the Duke Nukem franchise and the 3DR development team, although 3D Realms deemed the proposal “unacceptable… for many reasons.” According to 3D Realms, the offer didn’t include upfront money, a guarantee of a minimum payment, or a guarantee to complete DNF.

The company also noted of Take-Two’s lawsuit: “Less than a week after the DNF team was released, Take-Two filed its lawsuit in New York, seeking immediate temporary injunctive relief. The court denied Take-Two's request for a temporary restraining order. While we cannot comment on the details of the ongoing lawsuit, we believe Take-Two's lawsuit is without merit and merely a bully tactic to obtain ownership of the Duke Nukem franchise. We will vigorously defend ourselves against this publisher."