Just uploaded the Combat System prototype 0.0.0.2 in which I fixed a few bugs and added cloth simulation on one of the characters to make things a bit more fancy.

I'm working on adding a way to kick the opponent to push him back when he gets too close, and adding ragdoll physics for death animations since it looks rediculous when you kill your opponent mid-air :D. 
I'm also looking forward to adding keyboard controls for player one, as this is the only feedback I received so far (thanks json :D)