MIB, there are a host of possible reasons why the short interest is so high. Here are the top contenders IMHO:
The addition of Wave to the Russell indices. Remember the volume that day? Remember the next short interest number? The MMs had to be selling shares they didn't own to the index funds that had to buy. The bolus of short interest that formed that day is still there.
Wave's SP is volatile. That spells opportunity for the shorts.
Wave is a small and relatively poorly capitalized player in a field dominated by gorillas. Many shorts see a significant chance that Wave's position in the market will be destroyed by competition from the likes of Microsoft, Intel/McAfee, and a host of others.
Wave has a lengthy history of losses, delistings, PPs, dilution, and "going concern" reservations from their auditor. If you know nothing about the company except fourteen years of financial statements, it looks bad.
Wave's current business plan depends on a sea change in the way cmpanies approach data security -- moving from software to hardware. History shows that most business plans that depend on such a radical shift in the market (as opposed to plans that respond to such a shift) fail. Sure, some succeed wildly and the architects of the plan look like geniuses in hindsight, but most fail. Even if the shift does occur it could be years away and a lot can happen in that time, much of it not good for Wave (e.g. increased competition from better capitalized companies, an intellectual flight from Wave's employee ranks, disenchanted with the performance of their options, a new and better solution to the problem Wave seeks to solve, etc.). That gives the shorts time and the opportunity to hedge their positions once it looks like the shift is occurring, if Wave is still there.
Wave is largely dependent on a single OEM relationship with Dell. That spells risk.
But my favorite theory (which I hope is correct) is simply that the stock is too thinly traded for the shorts to cover. Even a small amount of buying pressure tends to make the SP spike. I'm hoping the shorts are simply trapped and hoping for a miracle to save them, like Russell or NASDAQ delisting. As an aside, I think the "days to cover" number that some folks calculate is purely theoretical and meaningless. The actual time to cover depends on how much you're willing to pay and your level of panic.
Cheers,
Dory