Yep, like I said part of the ringland (the piece that is missing from the edge of the piston) chipped off and that is what pecked up the head/piston. The head looks fixable. Make sure you get all of the old pieces of piston out of the crankcase! Just caused by stuck rings.

 

Hmm...... I wonder where that little piece went. Must have went out the exhaust or maybe the other owner took it out.

 

Like I said, get the pieces out of the crankcase. Chances are some of it went out the exhaust, some of it is lodged in the head or piston, but it probably is in the crankcase! Easy way to ruin the case and bearings if it is in the bottom. Look at the crank journals. Usually, but not always, they will be scratched from the piece of piston if it gets in the bottom.