Gamebryo Engine maker Emergent said today a deal that would have integrated struggling Australian developer Krome Studios into the company's middleware development structure has come to a "sudden and unexpected halt" as Krome appears to struggle to stay afloat. In first announcing the deal, which merged the two firms' middleware tech and engineering teams, collaborating on product extensions and developing cross-platform games together, nearly two months ago, Emergent CEO Scott Johnson was enthusiastic that the partnership would benefit both companies. But Johnson hinted today that the change in plans has to do with recent economic and staffing problems at what was once Australia's largest game studio. His comment in full reads: "Our strategic initiative with Krome was showing great promise, but has unfortunately come to a sudden and unexpected halt. Certainly our roadmap has been affected and we are re-evaluating our plans." The Emergent CEO added, in comments made to Gamasutra: "It’s always difficult to watch as companies scale back and talented people lose their jobs, and our industry has witnessed more than its fair share recently.” Krome Studios CEO Robert Walsh, speaking to IGN, acknowledged that tough times for the industry have led to layoffs but insisted that the company is continuing work on digital and social game projects. "Realistically, we have at least 40 doing work on projects," Walsh said when asked by IGN about Krome's current size, adding that pending projects could require that number to swell up to 100 in coming days. "It's pretty much just a smaller version of what [Krome] was," he said of the company that once employed over 400. Walsh cited delayed work-for-hire projects, general industry contraction and being "a little too late" to enter the social and casual games space in explaining his company's recent struggles to IGN. But he said he was proud of being able to support his staff during tough times. "We've always tried to run Krome like a family business," he said. "We've invested in our staff... There's not a lot work in Australia [in the games industry] right now," he added, "and that was one of the reasons we tried to keep people on for as long as possible, because where else would they go?" Perhaps best known for its Ty the Tasmanian Tiger series of 3D console platform games, Krome has also worked on the latest round of Spyro the Dragon games and Star Wars-licensed games such as The Force Unleashed. More recently the company developed Microsoft's downloadable arcade and classic game environment Game Room.