What Could Have Been
If there wasn’t any previous evidence that Sonic 4: Episode III isn’t happening there is now.
In a conversation with a fan on Facebook, Ken Balough revealed that Sonic 4: Episode III was originally planned to happen but for reasons “that can’t be discussed” it was scrapped.
Afterwards, despite the removal of the undisclosed material that would’ve hinted at a third episode, the point was reinforced. The game isn’t going to happen.
It looks like the cliffhanger left at the end of Sonic 4: Episode II will remain as such.