Huge potential
The game has a great base to it. It's smooth, easy to use, and it's fun. However, the fun decreases very fast as it's a basic fighting game with no plot or end to it, so it gets boring quickly. This game has huge potential to be in the top games howeve. Suggestions:
Story Line Mode: Keep the fighting similar to as it is now and in an arena. It doesn't need to be fancy, but something that ENDS a round to give us a bit of a rest would be nice. A great idea would be to have a boss (like the big guy in your game currently) at the end of each level. You could even put 'extra' bonus levels in between, like 'HIT AS MANY TARGETS AS YOU CAN', or do a Street Fighter favorite of bashing a car in a few seconds for the most damage, etc.
Mobs: Different mobs doing different things other then just basic attacking as you progress to make it tougher. Obviously, after each level or three, new 'normal' mobs can be introduced. Some with weapons, perhaps some that are fast, some that cloak and uncloak when they are near you, etc. Making it slightly different but allowing the need to change tactics per mob will be interesting and fun.
Leveling System: We all love this, that's why basic games like Upgrade Complete are amazing. Some things you can upgrade are damage, health, speed, slow regeneration, maybe unlocking better moves (Combo moves perhaps in the air and on ground) and other fun things to make your character more customized. I'd enjoy a charged hit skill. AKA hold down the key to perform a power move. What about 'rage', aka after dealing alot of damage, you fill up a 'rage' bar. You can then use it for a boost in attack speed/movement speed/damage/less hp loss for a short period of time.
The leveling system should be balanced to the game finish in terms of how much leveling you can do. Obviously you should be able to reply a level for more EXP and to make your character 'stronger' then a generic person who plows through it. It SHOULD still get harder as you go, though.
Powerups: Make it more interesting! Add special bonuses other then just damage and health. You could even tie this into the leveling system (aka a skill that grants longer use of powerups once you pick them up, or the ability to use X powerup 1-3 times per level.) Attack speed could be another, movement speed, etc.
Character Unlocks/Character Customization; If you go this route, create more, make them unique to one another. Basic characters would have no bonus, unlocked characters could have a neat bonus to them. More damage, smaller to hit (aka smaller hitbox), longer reach, etc. Give it some thought so that we WANT to spend that extra time unlocking other characters. Some customizations don't have to be CRAZY, you could maybe, give the fighters 3-5 different types og gloves, shoes, helmets, etc. But really you could just make it so they could change a few colors of the character, like skin color, clothing color, etc.
Keep the survival mode (What you have now) in game, and you can have other modes too. Maybe survival mode can be an unlocked feature after you beat storyline, where they can use there current character to gain more EXP and have fun. Keep the multiplayer feature too in this portion. (Maybe allow importing of characters somehow so if someone wants to play someone else, they can import there character with a key or a login. Makes for good gameplay!)
Now, I'm not stating to do all of this, this is only suggestions. You have HUGE potential, and you guys can obviously code/design a amazing game here. Good luck if you guys do something with this.. Let me know if you guys ever do! ;)