Book value isn't important. The discounted value of future earnings determines the value of the company. Therefore, your entire analysis is flawed from the beginning because it assumes that the market value of KKD is tied to the book value, whatever that happens to be.
Tangible Book Value is only important in that it provides a decent estimate of a FLOOR valuation (as I previously stated) when an entity is not a going concern, i.e. it's a proxy for a worst case scenario valuation for longs.
The adjusted (Tangible Book Value) balance sheet is also a better source for the simplistic bankruptcy determinants that you plopped down (quick ratio, etc...); I only made that post to show that the numbers you were using are likely garbage (for example, did you notice the current liability "Book Overdraft"; why don't you explain to everyone exactly what that account represents).
Prepaid expenses can't be worthless because they already paid it. That's what "prepaid" means. The cash was already spent and the expense paid. How can that be worthless?
You are assuming that kkd's books are accurate. Given the 6 month plus multi-million dollar investigations (SEC, Special Committee, independent law firm, auditors, Pooper Scooper, etc...) don't you think that maybe kkd was capitalizing expenses all along? What is an easy account to dump capitalized expenses? Prepaid expenses.
kkd's $20 million in Current Deferred Tax ASSETS represent
from the most recent 10-k:
Income tax payments, net of refunds, were $6,616,000 in fiscal 2002 and $5,298,000 in fiscal 2003. In fiscal 2004, the Company received a refund, net of income tax payments, of $2,763,000.
kkd has paid approximately $9 million in income tax over the 3 year period fy02-04; in fy05 the balance sheet entries indicate that much of that was refunded, i.e. they have little remaining refundable income taxes so the deferred tax assets (assuming the entity is not a going concern) have no significant market value.