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Paul,
You have a nice motor. It should have a Bendix type magneto & E bay has replacements, not factory but military coils that fit. The points you need to find a good used pair as they are NLA. Some Mercury’s swap with airplane magnetos but not yours sadly. Have you tried to drain the gearcase or checked out the prop? It has clutches from the factory. Behind the clutches is the waterpump, I’m sure it’s bad. Look uo Old Merc’s.com. They have some parts & seals you will need. Your motor started as a KA seriies & went on to be KE7, KF7, KG7 & KH7 green tanks. There is much to learn here, but many here are knowledgable. Don’t give it up so soon. That 10hp motor actually outputs 18hp & you are in for a RIDE!!!
The driveshaft from motor to gearcase may have some rust & need repair. Believe me one ride & you will see it’s a keeper!!
The crankshaft seals are worn too but no biggie. May I ask for photos posted? What is the compression of both cylinders? If you are lucky the tiller handle might have the factory screwdriver. Try unscrewing the grip. Very cool motors. I have had mine for 10 years now. Pay attention to details building it like a 2 stroke dirt bike. Back in the day I had a Honda 350 SL model, actually 324 cc. Bored it out to 368 cc & ported the head & added Honda 450 carbs with a good dirt cam.
Lots of fun with both dirt & water.
Jeff