Hi Mark - one of the KN7000 updates corrects this malfunction but really is not worth the hassle of trying to correct it. I assume your SD Card is 1 gigabyte in which case you could fill all 99 folders each with their 20 files filled with sequenced songs and still get nowhere near filling up your SD Card.
I have SD Cards with hundreds of audio (MP3) files on and still have space for more...
Happy new year
Rog