UPDATE 3: According to Chafee, 38 Studios took a turn for the worse due to poor sales of Kingdoms of Amalur: Reckoning.

“The game failed," said Chafee.

38 Studios founder Curt Schilling announced on Twitter yesterday that Reckoning sold 1.2 million copies. Chafee said the game needed to sell closer to three million.

The state also just published a bunch of documents related to its loan.

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UPDATE 2: A press conference with Rhode Island governor Lincoln Chafee is happening now.

“It’s not a good situation,” he said. “I’m not here to share good news. I wish things were different.”

Chafee said there were discussions between 38 Studios and the state about giving more taxpayer money to the developer, but the state declined.

“I would gladly extend the life of the company if I had confidence it would lead to profitably,” said Chafee. “We were not given that confidence.”

When the state was talking to 38 Studios, there was no mention of layoffs. In the press conference, the state has not acknowledged whether there have been mass layoffs, which appears to be the case.

The state is unaware whether 38 Studios will file for bankruptcy.

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UPDATE: According to WPRI, here's the email that was sent to 38 Studios employees today:

The Company is experiencing an economic downturn. To avoid further losses and possibility of retrenchment, the Company has decided that a companywide lay off is absolutely necessary.



These layoffs are non-voluntary and non-disciplinary.



This is your official notice of lay off, effective today, Thursday, May 24th, 2012.

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Both Polygon and Joystiq are reporting based on sources familiar with the situation that 38 Studios has laid off its entire staff. This includes both the main 38 Studios office, as well as all employees at Big Huge Games, which 38 Studios owned.

Rhode Island governor Lincoln Chafee had commented as recently as yesterday that all attempts were being made to rescue the studio from closure. He also stated that 38 had yet to find additional outside funding. Reports coming from inside the studio stated that employees had not been paid since May 1, and that all employee health benefits ran out as of today.

Details on this situation are still being investigated. We'll update this story as soon as we know more.