+1 Do right by the contractors by paying them properly and timely. Talk to angel investor about dissolving the company, get legal consultation and returning rem

+1 Do right by the contractors by paying them properly and timely. Talk to angel investor about dissolving the company, get legal consultation and returning remaining funds and IP to the investor. Take a break for a while. Setup new startup, approach previous angel investor and contractors again, and take another swing. The lesson learnt should be not to take just anyone "officially" as cofounder unless there is some sort of validation by others. Next time, have your investor and contractors interview such a person, ask common connections, bring that person onboard as contractor first.