Development was taking too long and they were running low on money, they were forced to release something to get at least some return on the investment.
but that made them lose the fans faith
They basically pulled a "Capcom"-- a poorly executed version though...
SNK probably knew that XII wouldn't be as great as say XI, so no sooner than XII dropped awhile later 98UM came to be, as did 02UM... Speaking of which, Bao in XIII would've been great; I mean imagine the HD combos he could do...
You also gotta think, at that time SNK overall was bigger elsewhere than it is in the US... I've been to numerous places throughout the world where there were just as many SNK/KOF games as there were games by Namco, Capcom, Konami, even Arcsys, if not more than them... They might've been a "small" company, but they're still bigwigs per sé... They could've just cleaned the sprites they had from XI and made them "HD" with full blown moves, and kept the XI system but balanced it out, and "added" more characters (at least ones from 2003)... For them to use a whole new graphics engine and whole new system shows me that though it was a risk, they still had money to invest in that risk, and it wasn't a complete stab in the dark... They know that their older graphics was something that kept most away from the game, in conjunction with the input "difficulty", so they went about it in a way where they could eliminate one issue and mitigate the other... You gotta give them credit for that...