Re: 1275 Midget engine running badly
It sounds like you have a bit of a mash up of parts with your engine. The 1275cc engines of that era would have a Engine Number beginning 12V778FH****on a plate by the Dynamo/Alternator. The 12H336789 Number doesn't ring any bells. I think you're going to have to do a bit of detective work and check things like Valve timing and Camshaft wear as it maybe the Valves are no longer fully opening? Easiest to check this by taking off the Valve Cover and see if all the Valves are compressed to the same degree when turning over the Engine by hand and looking at the Valve strokes.
I assume you've got adequate fuel delivery and it's not running out of fuel at higher revs?
Not sure what a stage 1 Engine mods are but I would think polished & ported Head and maybe a hotter Camshaft? Thankfully there are many A-Series Engine experts out there who will be able to assist you technically but you can check these few basics before stripping the Engine down further!
Hope this helps and do let us know how you get on as we'd be interested in what you find.