Updated from 1:53 p.m. EDT

Shares of Citadel Security Software ( CDSS) were among the worst-performing technology stocks Friday, falling 42% after the company lowered its 2004 earnings and sales outlook.

The software maker now expects sales of $15.2 million to $16 million, down from its previous guidance of $18.5 million to $21 million. As a result of the sales outlook, the company now says that it will not meet its second-half earnings guidance of $1 million to $2 million. The company said that several large deals it expected to close in 2004 are now more likely to close during the first half of 2005. Analysts polled by Thomson First Call are expecting a 2004 loss of 10 cents a share on sales of $20.2 million. Shares traded down $1.80 to $2.49.

palmOne ( PLMO) fell 22.2% after the company posted in-line second-quarter earnings and warned that third-quarter earnings and sales would miss the mark by a wide margin. Excluding items, the maker of handheld computers posted second-quarter earnings of $27.2 million, or 53 cents a share, on sales of $376.2 million. Analysts were expecting earnings of 53 cents a share on sales of $372.1 million. A year ago the company earned $5.5 million, or 14 cents a share, on sales of $271.2 million. Looking ahead, palmOne forecast third-quarter earnings of 21 cents a share on sales of $280 million, well below the 34 cents a share in earnings and $318.1 million in sales that analysts are expecting. Shares traded down $9.44 to $33.11.

Shares of Wave Systems ( WAVX) fell 9.6% after the company said it would sell almost 5.5 million shares of stock at $1.05 apiece. Wave Systems said it would use the $5.8 million in proceeds for general corporate purposes. The selling price represents a 23% discount to Thursday's closing price of $1.36. The stock sale comes just a day after the company said it received an order from the U.S. Military Academy's IT Operations Center to provide a suite of technology products for West Point's Secure Dissemination and Data Retrieval Computer System project. Shares traded down 13 cents to $1.23.

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