I'll try switching to the 20W30 or 40. The manual says 10W but if it helps I'll change it.
The manual is worthless. It only talks about how to assemble and the very basics.
I did get a response finally from the company we bought it from. They say you should shut it off before shifting gears and to start it in the forward gear. That really seems ridiculous. Who wants to shut a motor off each time to shift gears. Plus I think it would wear the clutch more but starting it in Forward or Reverse with the brake on.
I did check the adjustment screw and it is regular threading. I have the screw turned in to the point of where it is flush with the outside of the locking nut. So I'm sure it's probably shot.
What do you deglaze with? Just sandpaper or what?

Thanks again for the good info and advice. I'm new to these wet clutches. I've only worked on cars.

 

Plus this thing just doesn't seem like it is a true 125cc. It doesn't seem to have the power of a 125. I had a friend that had a Kawasaki 100cc dirt bike and we both rode on it as teenagers and it carried us both fine. This thing bogs down with just me on it and I'm under 200 pounds.

 

"What do you deglaze with? Just sandpaper"

Yes, I use coarse emery. What the sellers probably mean by "you should shut it off before shifting gears" is match revs with speed when changing gear, like you do with a manual gear car. As you let your foot off the clutch, engine revs have to be matched with the speed of the other half of the clutch, or the clutch has to slip until they do.

Most bikes won't start in forward gear as they have a lock-out to stop them. If you do, it puts strain on the starter mechanism if there is any "drag" in the centrifugal clutch.