On August 16, 2011, about 1000 central daylight time, a Quad City Challenger II CW, experimental light sport airplane, N979JP, was substantially damaged when it impacted terrain during initial climb at Granbury Regional Airport (GDJ) Granbury, Texas. The airplane was owned by a private individual and operated by another private individual. The pilot and second pilot sustained serious injuries. Visual meteorological conditions prevailed and a flight plan had not been filed for the 14 Code of Federal Regulations Part 91 personal flight. At the time of the accident the airplane was departing GDJ for a local flight. The second pilot stated that during takeoff the airplane had difficulty getting airborne and he did not think the engine ever “got up to full power”. The pilot stated that during the initial climb he detected a decrease in engine performance, but was unable to stop the descent. The airplane stalled about 10 to 15 feet above ground level. During impact the landing gear collapsed and there was substantial damage to the fuselage, engine mount, and empennage. The engine electronic control unit (ECU), wiring harness, fuel lines, and throttle body injectors were removed and examined at the engine manufacturer’s maintenance facility. The control linkage was found to be in working order with no deficiencies. The ECU also tested within design parameters with no defects noted. The fuel lines connected to the engine were examined. The rubber hoses had dry rot and both plastic “Y” connectors were observed to be cracked and leaking. During disassembly one “Y” connector broke and separated. When the second “Y” connector was tested with colored water under operating pressure fluid began to spray out of the crack. An examination of the airplane and engine found no other preimpact anomalies. The airplane was equipped with a ballistic parachute recovery system with a rocket motor activated by an emergency firing handle in the cockpit. After the wreckage had been moved to another location the emergency firing handle in the cockpit was observed to be hanging loose, unsecured, and the safety pin was not installed. Emergency responders that had assisted the two pilots at the accident scene, and the persons that moved the wreckage to the other location, were unaware of the presence of the rocket motor on the airplane and unaware that it was then armed and ready to fire.