On September 20, 2008, about 0855 eastern daylight time, an amateur-built, Kolb Mark III, N350RB, registered to a private owner, operating as a 14 Code of Federal Regulations Part 91 personal flight, collided with trees while maneuvering following a total loss of engine power, shortly after takeoff from Goodspeed Airport (42B), East Haddam, Connecticut. Visual meteorological conditions prevailed and no flight plan was filed. The airplane received substantial damage. The private pilot and one passenger reported serious injuries. The flight was originating, at the time of the accident. The pilot stated he conducted a preflight inspection, and an engine run-up before departing. He added 1.5 to 2 gallons of automotive gasoline to the fuel tank; however he did not stick the fuel tanks or check to see if there was any water was present in the fuel tanks. No other anomalies were noted during the preflight inspection. He turned the boost pump on, and departed from runway 14. The airplane was on initial takeoff climb, about 300 feet when the engine sputtered and quit. He immediately turned the airplane to the right in order to return to the airport. He did not attempt to activate the ballistic parachute because the airplane was too low. He did not want to land straight ahead into a swamp due to a fear of being injured and drowning, since they did not have any flotation devices on. The airplane collided with trees and came to rest inverted on the ground. Examination of the airplane by a Federal Administration Inspector revealed it received structural damage to the airframe. Examination of the two fuel tanks revealed the fuel tanks were not ruptured and the fuel caps had a tight seal. The airplane is not equipped with fuel sump drains. Examination of the fuel system revealed all fuel lines were intact and correctly routed. Fluid was observed in the fuel lines and drained into a container. Water was observed in the drained fuel. The carburetor bowls were removed and water was observed in the bowls. No contaminants were noted in the fuel filters. Some sediment was present in the bottom of the fuel tanks. The spark plugs were removed and the propeller was turned by hand. Compression and suction was available on all cylinders and engine continuity was confirmed from the forward section of the engine aft to the accessory case. Fire department personnel stated they did not use any water on the airplane when they arrived at the crash site. They were subsequently recalled back to the accident site due to fuel leaking out of the airplane and they foamed the entire airplane and surrounding area.