Problem solved. While watching my son (it is his bike) begin to remove the tank in order to get to the carb I notice that his chain is sagging quite a bit. Then I see that some of the links are actually bunched up. The chain is dangerously loose! Moved the tire back to take out the slack and the bike runs fine. Discussed the importance of periodic visual inspection after that one.

 

The chain was so loose that the links were getting bunched up in each other? I've never heard of a loose chain causing a bike to cut out in the first 2 gears

 

Perhaps cutting out is not the best term to describe what was a lurching power loss sensation. The only thing I can think is that the chain was so loose that it was jumping around and the drive sprocket was skipping links. The links were bunched up together as in the chain was not pulled tight. The chain was so loose that you could have simply lifted it off the sprockets.

 

wow, that sounds nasty. Time for a new set of sprockets and chain now as well?