BIG UPDATE 5: Dashing and Strike Kick added, made attack animations better, some new sfx, AI aggression improved, KO counter added, basic background added in, various bug fixes...god I can't remember all of the new junk! Check it!
UPDATE 4: UPDATE: Enemy AI got a new tweak or 10. Enemies are a lil less aggressive, but that's temporary. They can now block also, they'll recoil if hit, leaving an opening for you to attack
UPDATE 3: new attacks for the enemies added
UPDATE 2: COMBO! Combo system added!
UPDATE: I added in blocking as well as various fixes, including the death beatings \o/ AND respawning finally.

Alright, I posted this fighting engine the other day without a functional preloader and a few glitches but I'm resubmitting it with a preloader and some fixes to see how well it does now that it doesn't look like a junk flash on first sight.
Lucked out today in class when the pcs were running off of a proxy server for some reason, so I was able to bypass the site blocker and snag an NG preloader to work with. Sorry still no restart button, I ran out of time in class to add one, just right click and rewind to start over. Next version of this I'll just edit this submission.

edit: I ran out of characters, so I cut out the old description and left the controls, edited as neccesary of course. If you want the description of the initial result, check the first post of the beta.
The control scheme is set up similar to MUGEN's, here's a layout:
QWASZX scheme, you can change attacks at any time during another attack (except in a backflip), so get creative!
W - Block
Z - light punch
Z (in air) - Pressure Drop (downward punch that also keeps you airborne longer
A - heavy punch (Hadoken fireball when standing, need a little guage power, uppercut when crouched)
A (in air) - Air strike Hadoken (downward fireball that goes through enemies and explodes on the ground for further damage)
X - light kick
X (in air) - Strike Kick (propels you downward and in the direction you are pointing)
S - heavy kick (always backflip)
Q - Counter (you do not take damage if an enemy hits you while your hands are out, and instead, you kill them)
Q+Direction - Dash (for quick movement across the field)
Arrows to move, down to crouch, up to jump and again to double jump.
You can't attack in the air if you double jump, you need to land before a next attack

There are a few interesting little combos I've put together while testing this:
Double Hadoken Finish: A, jump, A (in air)
Ninja Dash: Q (succesful counter), jump (in mid dash), land (in front on another enemy, facing them) [You can keep doing this by jump canceling each dash and landing in range of another enemy attack ;)]
Kick-Flip: X,S