First, consider your $250k written off. Don't hang on to it: doing so will only make you dig yourself deeper into ground and giving in to the client's demands in the hope of maybe getting paid. This will ruin any strategy to recover from the situation. You can't negotiate anything if you remove your ability to walk away. Leave the $250k and call that the clean state. That's the worst case that might happen so why not accept and start from it.

Secondly, do not deliver the update. That's the only thing you have that might give you some leverage. If they can't pay now, don't count on them being able to pay later. As others have suggested, a sizable portion of the company stock might be another option if you like to gamble. You'll have to think about the valuation, of course, and what the company might be in the future: a reasonable compensation might be 0.1, 1, 5, or 20% of the company. Given the current state of affairs, the stock becoming worthless is also one fair possibility.

If the company is as penniless as it seems there's no point in even suing to get paid. Next time, stop deliveries after one month if payments stop coming in.