Curt Schilling's 38 Studios laid off all of their employees today, a source familiar with the company tells Polygon.

Curt Schilling's 38 Studios laid off all of their employees today, shutting down both their Rhode Island office and Maryland-based subsidiary Big Huge Games, a source familiar with the company tells Polygon.

The news came as a surprise to nearly everyone involved, including the state of Rhode Island and Governor Lincoln Chafee who during an afternoon press conference said that as of this morning they hadn't heard a word about possible layoffs or a closure.

During the evening press conference Chafee attributed the sudden studio closure and financial plummet to the studio's fist game, Kingdoms of Amalur: Reckoning, which he said "failed."

"The game failed," he said. "The game failed. That was integral to the success of the company."

He told reporters that experts told them it would have had to sell 3 million copies to break even. Schilling has said that the game sold about 1.2 million copies in its first 90 days.

"Companies fail over night," Chafee said, in response to a question about the sudden closure.

The studio's financial turmoil came to light earlier this month when they first missed and then later made a $1.125 million payment to the state of Rhode Island.

Earlier this week Chafee told reporters that the state's Economic Development Corporation had met with the studio to discuss payroll issues and layoffs.

Official confirmation is slow in coming, likely due to the complete closure of the company, but at least one former employee of Big Huge Games, a subsidiary of 38 Studios, took to Twitter to lament the company's passing.

"Big Huge Games was home for my wife and me for our adult lives so far," wrote Colin Campbell, lead world designer at Big Huge Games. "I'll miss it terribly, but so proud. Good night and good luck."

This is the letter sent to all of 38 Studios' Providence and Baltimore employees this afternoon:

"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."

Sources at the company tell Polygon that internal communication inside the studio slowed to a standstill this month and paychecks ceased to arrive. Shortly after the layoff notice was sent out, we were told, the company's internal email servers were shut down.

While all employees in both companies appear to have been laid off, the governor's office is still working to figure out a way to make 38 Studios solvent. That's because under a loan agreement that the state signed, Rhode Island will be left owing quite a bit of money if the studio goes under.

Founded in 2006 in Massachusetts as Green Monster Games, 38 Studios was lured to Rhode Island in 2010 by a $75-million loan guarantee from the state. At the time state officials argued that the studio would bring hundreds of jobs and millions in tax revenue to the state.

While 38 Studios made their first partial payment they then missed a $1.125 million loan payment to the Rhode Island Economic Development Corporation on May 1. During a series of meetings with the state, 38 Studios said they couldn't pay their employees and asked for more help from Rhode Island. The studio later delivered a payment to the state, but then said they couldn't cover the check. On May 18, they made good on their payment.

If the 38 Studios remains closed the state says it has the money to make the first year of payments on the loan from a reserve they set aside pulled out of the loan amount. But after that the state would then have to start making the payments to the bank.

'We do have some time," a state official told reporters during today's press conference. "There wouldn't be a debt service default within the year."

The fallout of the closure has already reached beyond the bounds of game development.

Earlier today, a group of Rhode Island lawmakers introduced a resolution requesting that the EDC release all records related to 38 Studios and its "financial situation and seventy-five million dollar loan guarantee."

As lawmakers start to move toward a more formal investigation into the studio and its spending, a number of officials at the Rhode Island Economic Development Corporation have either resigned or asked not to be reappointed by the governor.

The director of the Economic Development Corporation resigned earlier this month and today the governor said that two other members of the board have asked not to be reappointed and another resigned this week. The state is also discussing asking for the resignation of other board members who supported the decision to back 38 Studios.

Schilling's 38 Studios employed 379 people full-time as of March 15, 288 of them in Rhode Island. The developer was working on a massively multiplayer online game titled Project Copernicus. It released Kingdoms of Amalur: Reckoning through publisher EA in February. The game reportedly sold 1.2 million copies in the first 90 days on market, according to Schilling, and was positively received by critics. Last month, 38 released a downloadable expansion pack for the game titled Teeth of Naros.

About 3 a.m. Friday, Schilling responded to the storm of news surrounding the studio's closing with this Tweet:

"Thank you to everyone sending prayers and well wishes to the team and families of 38 Studios."

A slew of developers from around the country have been Tweeting that they are hiring in hopes of finding the hundreds of displaced employees jobs.

Catch up on the history of the studio and its deal with Rhode Island here.

We've reached out to the Rhode Island Economic Development Corporation, Gov. Chafee and Curt Schilling for comment and will update this story when they respond.