On July 2, 1998, about 2030 eastern daylight time, a Falcon XP, a homebuilt, unregistered airplane, was substantially damaged when it lost engine power and struck trees in Mahopac, New York. The certificated private pilot was seriously injured and the student pilot (SP) passenger received minor injuries. Visual meteorological conditions prevailed and no flight plan had been filed for the flight that originated at the Mahopac Airport (N77). The instructional flight was conducted under 14 CFR Part 91. In a telephone interview, the pilot stated he was practicing simulated engine failures and emergency procedures with the SP. After a simulated "engine out" approach to the runway, the SP applied power to go around. About 50 to 100 feet above the trees located at the end of the runway, the pilot heard a loud "screeching" sound, which was followed by a loss of engine power. The pilot then took control of the airplane and prepared for a forced landing. The airplane impacted trees, spun around and impacted the ground. The pilot stated the engine was still operating after the impact, but the propeller was not turning. Examination of the wreckage was performed by a Federal Aviation Administration (FAA) Inspector. The propeller turned freely when rotated and there were no indications of rotation visible on the propeller blades. An FAA Inspector's report stated, the crankshaft was rotated from the rear of the engine. "...we observed via a pencil inserted in the spark plug holes that the rear cylinder was turning with the crankshaft, the front cylinder was not..." The airplane was equipped was a Rotax 503 engine, manufactured by Bombardier. The manufacturer's operating manual stated: "Danger!: This engine, by its design, is subject to sudden stoppage! Engine stoppage can result in crash landings. Such crash landings can lead to serious bodily injury or death. Never fly the aircraft equipped with this engine at locations, airspeeds, altitudes, or other circumstances from which a successful no-power landing cannot be made, after sudden engine stoppage." "Warning!: Although these engine types have undergone considerable durability testing, this engine is not a certified aircraft engine. It has not received any individual safety or durability testing and conforms to no aircraft standards. It is for use in experimental and ultralight uncertified aircraft and vehicles only, in which an engine failure will not compromise safety...." The pilot stated the airplane was operated under Federal Aviation Regulation Part 103, as an Ultralight vehicle. An FAA Inspector's report stated: "...Our investigation of the accident clearly showed that this was clearly an aircraft and not an ultralight accident, because of the fact, that the aircraft was equipped with a 15 gallon fuel tank. Under the FAA exemption No. 4274G, the maximum fuel capacity allowed is 10 gallons..." The pilot reported, he maintained and inspected the airplane according to manufacture's recommendations. The pilot was issued a certificated repairman license for the airplane. He did not possess an airframe or powerplant license. The pilot did not possess a flight instructor rating. He reported about 840 hours of total flight experience, of which, 500 hours were in make and model.