Edgar Filing: COMMTOUCH SOFTWARE LTD

As filed with the Securities and Exchange Commission on May 15, 2002

Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM F-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933

COMMTOUCH SOFTWARE LTD.
(Exact name of Registrant as specified in its charter)

Israel Not Applicable
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

6 Hazoran Street
Poleg Industrial Park, P.O. Box 8511
Netanya 42504, Israel
011-972-9-863-6888
(Address and telephone number of Registrant's principal executive offices)

c/o Commtouch Inc.
Devyani Patel, Vice President, Finance
1300 Crittenden Lane, Suite # 102
Mountain View, California 94043
(650) 864-2000
(Name, address and telephone number of agent for service)

Copies to:

Lior O. Nuchi Aaron M. Lampert
Venrice R. Palmer
McCutchen, Doyle, Brown Naschitz, Brandes & Co.
& Enersen, LLP 5 Tuval Street
Three Embarcadero Center Tel Aviv 67897 Israel
San Francisco, CA 94111
(415) 393-2000
Fax (415) 393-2286

Approximate date of commencement of proposed sale to the public: From time
to time after the Registration Statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, please check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

Calculation of Registration Fee

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Proposed
Title of Each Class Maximum Proposed
of Securities Amount to be Aggregate Price Maximum Aggregate Amount of
To Be Registered Registered Per Unit(1) Offering Price Registration Fee(2)
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ordinary shares, NIS 0.05
nominal value per share...... 7,095,886 $0.16 $1,135,341.76 $104.45
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(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c) based on the average of the high and low prices of
the Company's ordinary shares as reported on the Nasdaq National Market System
on May 6, 2002.

(2) The Registrant initially filed a Registration Statement on Form F-1
(Registration No. 333-31836) on March 6, 2000 (the "Form F-1"), to register
certain offers and sales of its ordinary shares as set forth in that
Registration Statement. Subsequently, the Registrant withdrew the Form F-1 on
April 12, 2000. The Registrant is filing this Registration Statement on Form F-3
to register the reoffer and resale of the securities indicated on this cover
page. A registration fee of $49,468.00 was paid in connection with the filing of
the Form F-1. Pursuant to Rule 457(p), the aggregate total dollar amount of the
filing fee associated with the unsold ordinary shares under the F-1 has
previously been offset by the filing fees in the amounts of (a) $119.80 for
Registration Statement on Form S-8 No. 333-65532 filed on July 20, 2001; and (b)
$158.24 for Registration Statement on Form F-3 No. 333-68248 filed on August 24,
2001. The remaining balance of $49,189.96 is being further offset by the filing
fee due for this Registration Statement.

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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SECURITYHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.

SUBJECT TO COMPLETION, DATED _____, 2002

PROSPECTUS

Commtouch Software Ltd.

7,095,886 Ordinary Shares

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As we describe further below under "Offer Statistics and Expected
Timetable and Plan of Distribution," the Selling Securityholders identified in
this prospectus are selling up to 7,095,886 of our ordinary shares, some of
which underlie warrants. The warrants themselves are not being offered by this
prospectus. The Selling Securityholders acquired the ordinary shares from the
Company in a private placement in April 2002 after approval by the Company's
shareholders at a meeting held on April 8, 2002. The ordinary shares offered
hereby have been registered pursuant to registration rights granted to the
Selling Securityholders by the Company in connection with the private placement.
These securities may be offered from time to time by the Selling Securityholders
through public or private transactions, on or off the Nasdaq National Market, at
prevailing market prices or at privately negotiated prices. The Selling
Securityholders will receive all of the proceeds from this offering and will pay
all underwriting discounts and selling commissions, if any, applicable to the
sale of the securities. We will pay the expenses of registration of this
offering.

The Company has agreed to indemnify the Selling Securityholders against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act").

The ordinary shares are being offered by the Selling Securityholders
subject to prior sale, subject to their right to reject offers in whole or in
part and subject to certain other conditions.

The Selling Securityholders may be deemed to be "underwriters" within the
meaning of the Securities Act and any profits realized by them may be deemed to
be underwriting commissions. Any broker-dealers that participate in the
distribution of ordinary shares also may be deemed to be "underwriters," as
defined in the Securities Act, and any commissions or discounts paid to them, or
any profits realized by them upon the resale of any securities purchased by them
as principals, may be deemed to be underwriting commissions or discounts under
the Securities Act. The sale of the ordinary shares is subject to the prospectus
delivery requirements of the Securities Act.

Our ordinary shares are currently traded on the Nasdaq National Market
under the symbol "CTCH." On May 10, 2002 the last reported sales price of an
ordinary share on the Nasdaq National Market was $0.16 per share.

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This investment involves risk. See "Risk Factors" beginning on page ____.
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Neither the Securities and Exchange Commission nor any state securities
Commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

The date of this Prospectus is , 2002

TABLE OF CONTENTS

Page
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Special Note Regarding Forward-Looking Information.......................... i
Summary .................................................................... 1
Risk Factors ............................................................... 5
The Offer and Listing....................................................... 19
Reasons for the Offer and Use of Proceeds .................................. 20
Selling Securityholders .................................................... 21
Shares Eligible for Future Sale ............................................ 26
Offer Statistics and Expected Timetable and Plan of Distribution............ 28
Legal Matters .............................................................. 30
Experts .................................................................... 30
Where You Can Find More Information ........................................ 30
Information Incorporated by Reference ...................................... 31
Enforceability of Civil Liabilities ........................................ 31

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SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

This document contains forward-looking statements that involve risks and
uncertainties. These statements relate to our future plans, objectives, beliefs,
expectations and intentions. In some cases, you can identify forward-looking
statements by our use of words such as "expects," "anticipates," "believes,"
"intends," "plans," "seeks" and "estimates" and similar expressions. Our actual
results, levels of activity, performance or achievements may differ materially
from those expressed or implied by these forward-looking statements. Factors
that could cause or contribute to these differences include those discussed in
our Annual Report on Form 20-F, which is on file with the Securities and
Exchange Commission.

-i-

SUMMARY

We are a provider of email services and software for email and messaging
solutions to service providers that target both residential and business
subscriber users.

Our main target customers include companies that specialize in providing
communications applications to enterprises, such as, ASPs, ISPs, telecoms,
CLECs, wireless carriers, data centers, systems integrators, and IT consultants.

Email and messaging is complex and requires focus to implement, deliver and
maintain. Today's solutions include the ability to address both front-end and
back-end requirements, anytime-anywhere access, and features such as anti-virus
protection, unified messaging, calendaring, group scheduling, file sharing, and
collaboration. Technologies for the future are necessitating that email and
messaging adapt and change with the new innovations. Our flexible technology and
economies of scale enable us to provide email solutions in a cost-effective
manner, intended to allow businesses to achieve desirable economic advantages.
These technologies have been conceived, developed and refined over the course of
the past 11 years, during which we have provided both services and software to a
multitude of customers.

We offer software for email and messaging solutions to service providers, mainly
small and medium size enterprises (SME). Service providers receive a license to
install and use our software and technology in order to provide messaging and
email services from their own data center facility. Our service provider
solution enables service providers to easily manage the email and messaging
features/services that they in turn provide to their end users.

We deliver a comprehensive software solution that -

o Enables ISP business subscribers to enjoy advanced messaging
applications.

o Enables service providers to offer packages of email services. With
Commtouch Classes of Service (CoS), service providers can create
different packages of service to their diversified subscribers and
market each package separately.

o Enables service providers to simplify deployment and manageability
of a highly-scalable messaging platform for residential and business
subscribers, and to achieve high performance and maximized
utilization at a competitive low cost (i.e. low hardware, bandwidth
and administration costs).

Our solution provides:

o Access to accounts from standard desktop email clients (e.g.
Microsoft Outlook and Qualcomm Eudora), Web browsers and wireless
devices, such as, WAP-enabled mobile phones.

o Message notification on an advanced platform, to pagers, mobile
phones, instant messengers and other email addresses.

o Integrated, Web-based applications, including calendar, task
manager, contact center, notes, short message service (SMS), and
more.

o Customization of the Web email client interface to extend an
organization's brand.

o Multiple language support for a multilingual user base.

Office Location

Our principal executive offices are located at 6 Hazoran Street, Poleg
Industrial Park, Netanya 42504, Israel, where our telephone number is
011-972-9-863-6888, and 1300 Crittenden Lane, Suite # 102, Mountain View,
California 94043, where our telephone number is (650) 864-2000. Our website
address is www.commtouch.com.

Capitalization and Indebtedness

The following table sets forth the capitalization and indebtedness of Commtouch
as of March 31, 2002, as adjusted for the private placement in April 2002:

(UNAUDITED)
(IN THOUSANDS)
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Long-term liabilities ........................................ $ 269
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Shareholders' equity:
Ordinary shares, NIS 0.05 par value; 40,000,000 shares
Authorized, 22,105,367 actual shares issued and
outstanding ............................................. 255
Additional paid-in capital ................................. 153,512
Deferred compensation ...................................... (690)
Notes receivable from shareholders ......................... (752)
Accumulated deficit ........................................ (147,634)
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Total shareholders' equity ......................... $ 4,691
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Total capitalization ............................... $ 4,960
=========

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RISK FACTORS

You should carefully consider the following risk factors before you decide to
buy our ordinary shares. You should also consider the other information in this
prospectus. If any of the following risks actually occur, our business,
financial condition, operating results or cash flows could be materially
adversely affected. This could cause the trading price of our ordinary shares to
decline, and you could lose part or all of your investment. The risks described
below are not the only ones facing us. Additional risks not presently known to
us, or that we currently deem immaterial, may also impair our business
operations.

Business Risks

If the market does not respond favorably to our new messaging solutions and
related technologies, we will fail to generate revenues.

Our success will depend on the acceptance and use of our software messaging
solutions by service providers to provide email services to their customers. We
cannot estimate the size or growth rate of the potential market for our software
offerings. If the market for email software fails to grow or grows more slowly
than we currently anticipate, our business will suffer dramatically. Even if
that market grows, our solutions may not achieve broad market acceptance. Since
we have only recently released our new messaging platform for general
distribution, we do not have experience to evaluate whether it will achieve
broad market acceptance. Also, because a preponderance of our future revenue
will be derived directly or indirectly from our software messaging solutions, if
that market does not grow, our business will likely fail.

Our future revenues are unpredictable and our quarterly operating results may
fluctuate which could adversely affect the value of your investment.

Because we have a limited history with our new email solutions and because of
the emerging nature of the markets in which we compete, our revenue is
unpredictable. Our current and future expense levels (although greatly reduced)
are to a large extent fixed. We may be unable to adjust spending quickly to
compensate for any revenue shortfall, and any significant revenue shortfall
would have an immediate negative effect on our results of operations and share
price.

A number of factors, many of which are enumerated in this "Risk Factors"
section, are likely to cause fluctuations in our operating results and/or cause
our share price to decline. Other factors which may cause such fluctuations
include:

o The market acceptance of our new software messaging platform and
related solutions

o The size, timing and fulfillment of orders for our new software
messaging solutions;

o The success of our selling efforts to service providers;

o The rate of adoption of new software messaging solutions by
enterprise customers in the current economic environment;

o The threat of de-listing by the NASDAQ;

o The receipt or payment of irregular or nonrecurring revenues or
expenses;

o Our ability to successfully develop and market new solutions, as may
be needed;

o Pricing of our solutions; and

o Effectiveness of our customer support.

Because of differing operational factors and the material changes to our
business model, period-to-period comparisons of our operating results are not a
good indication of our future performance. It is likely that our operating
results in some quarters will be below market expectations. Because we are going
to market with new solutions and have sold most of our hosted email service
businesses, it is difficult to evaluate our business and prospects.

We commenced operations in 1991, but we are only beginning to try to sell our
new software messaging solutions after having sold outsourced Web-based email
services from 1998 through 2001, which itself was a change from our initial
focus on the sale, maintenance and servicing of stand-alone email client
software products for mainframe and personal computers. In late 2001 and early
2002, we sold our hosted exchange business and assigned most of our email
service business to another company, to focus exclusively on developing and
selling new software messaging technologies. This change required us to adjust
our business processes and to restructure Commtouch. Therefore, we have no
operating history as a provider of our new email technologies upon which you may
be able to evaluate our business and prospects. It is too early to judge the
success of this business.

We have many established competitors who are offering similar solutions

The market for messaging technologies is intensely competitive and we expect it
to be increasingly competitive. Increased competition could result in pricing
pressures, low operating margins and the realization of little or no market
share, any of which could cause our business to suffer.

In the market for email and messaging software solutions, we compete directly
with software solution providers, including Critical Path, OpenWave, iPlanet
(Sun Microsystems), Mirapoint, Sendmail and Rockcliff, as well as with companies
that develop and maintain in-house email solutions, such as Microsoft and IBM.
Furthermore, certain small-scale email software providers offer low-cost basic
solutions, but with limited scalability or value-added functionality. These and

other companies could potentially leverage their existing capabilities and
relationships to enter the service provider email solutions industry.

Our market's level of competition is likely to increase as current competitors
increase the sophistication of their offerings and as new participants enter the
market. In the future, as we expand our offerings, we may encounter increased
competition in the development and distribution of these solutions. Many of our
current and potential competitors have longer operating histories, larger
customer bases, greater brand recognition and greater financial, marketing and
other resources than we do and may enter into strategic or commercial
relationships on more favorable terms. In addition, new technologies and the
expansion of existing technologies may increase competitive pressures on us. We
may not be able to compete successfully against current and future competitors.

Our ability to increase our revenues will depend on our ability to successfully
execute our sales and marketing plan.

The complexity of our software messaging solutions and the email software market
require highly trained sales and marketing personnel to educate prospective
customers regarding the use and benefits of our solutions. We have limited
experience in selling software solutions to service provider customers. It will
take time for our current and future employees to learn how to market our
solutions. Additionally, we are unable to predict the success in selling newly
introduced solutions in which we have no experience marketing and are relying on
these solutions to produce a substantial portion of our revenues in the future.
As a result of these factors, our sales and marketing organization may not be
able to compete successfully against the bigger and more experienced sales and
marketing organizations of our competitors.

We have a history of losses and may never achieve profitability.

We incurred net losses of approximately $19.9 million in 1999, $54.2 million in
2000 and $61.0 in 2001. As of December 31, 2001, we had an accumulated deficit
of approximately $146.8 million. We have not achieved profitability in any
period, and we might continue to incur net losses in the future. If we do not
achieve profitability, our share price may decline further.

Possible Need For Additional Funds

The Company is very thinly capitalized. As such, we might become dependent upon
raising additional funds to finance our business. Our cash balance at December
31, 2001 was $2.2 million. If we are unable to raise additional funds, the
Company could fail. There can be no assurance that we will be able to raise
necessary funds or that we will be able to do so on terms acceptable to us. If
needed, our inability to obtain adequate capital would limit our ability to
continue our operations. Any such additional funding may result in significant
dilution to existing stockholders.

Risk of Recession

Some of our former customers continue to operate in the dot-com market based on
internet-centric business models and are experiencing a significant economic
slowdown and an inability to raise additional capital.

These former customers were assigned to MailCentro, Inc. (a wholly owned
subsidiary of CP Software Group, Inc.) and Telecomputing, Inc. in connection
with the Company's agreements with these companies. According to these
agreements entered into with MailCentro, Inc. and Telecomputing, Inc., the
Company is expected to realize royalties on payments made by these former
customers to MailCentro and Telecomputing (primarily in 2002). The ability of
MailCentro and Telecomputing to collect outstanding receivables is significantly
impacted by the liquidity issues of these customers, which may negatively impact
our ability to recognize future revenue based on the afore-stated royalties. As
a result, we may experience shortfalls in our future revenues.

The loss of our key employees would adversely affect our ability to manage our
business, therefore causing our operating results to suffer and the value of
your investment to further decline.

Our success depends on the skills, experience and performance of our senior
management and other key personnel. The loss of the services of any of our
senior management or other key personnel, including Gideon Mantel, our Chief
Executive Officer and Amir Lev, our President and Chief Technical Officer, could
materially and adversely affect our business. The loss of our software
developers may also adversely affect our messaging platform product, therefore
causing our operating results to suffer and the value of your investment to
decline. We do not have employment agreements inclusive of set periods of
employment with any of these key personnel. We cannot prevent them from leaving
at any time. We do not maintain key-person life insurance policies on any of our
employees.

Our recent head-count reduction from 210 employees to approximately 35 employees
is significantly straining our operational resources. We have significantly
curtailed sales and marketing resources and this may compromise our ability to
enhance revenues.

Our business and operating results could suffer if we do not successfully
address the risks inherent in doing business overseas.

At December 31, 2001 we had sales offices in Israel, United States and Japan. We
intend to continue to seek ways to market our software messaging solutions in
international markets by utilizing appropriate distributorship channels, i.e. by
way of our joint strategic relationship with Unisys and other foreign
representatives. We may not be able to compete effectively in international
markets due to various risks inherent in conducting business internationally,
such as:

o differing technology standards;

o inability of distribution channels to successfully market our
software messaging solutions;

o export restrictions, including export controls relating to
encryption technologies;

o difficulties in collecting accounts receivable and longer collection
periods;

o unexpected changes in regulatory requirements;

o political and economic instability;

o potentially adverse tax consequences; and

o potentially reduced protection for intellectual property rights.

Any of these factors could adversely affect the Company's international sales
and, consequently, business and operating results.

Terrorist attacks such as the attacks that occurred in New York and Washington,
D.C. on September 11, 2001 and other attacks or acts of war may adversely affect
the markets on which our ordinary shares trade, our financial condition and our
results of operations.

On September 11, 2001, the United States was the target of terrorist
attacks of unprecedented scope. These attacks have caused major instability in
the U.S. and other financial markets. There could be further acts of terrorism
in the United States or elsewhere that could have a similar impact. Leaders of
the U.S. government have announced their intention to actively pursue and take
military and other action against those behind the September 11, 2001 attacks
and to initiate broader action against national and global terrorism. Armed
hostilities or further acts of terrorism would cause further instability in
financial markets and could directly impact our financial condition and our
results of operations.

Technology Risks

We might not have the resources or skills required to adapt to the changing
technological requirements and shifting preferences of our customers and their
users.

The internet messaging industry is characterized by rapid technological change,
changes in end user requirements and preferences, and the emergence of new
industry standards and practices that could render our solutions and proprietary
technology obsolete. Our success depends, in part, on our ability to continually
enhance our existing email and messaging solutions and to develop new solutions,
functions and technology that address the increasingly sophisticated and varied
needs of our prospective customers and their users. The development of
proprietary technology and necessary enhancements entails significant technical
and business risks and requires substantial expenditures and lead-time. We may
not be able to keep pace with the latest technological developments. We may not
be able to use new technologies effectively or adapt to customer or end user
requirements or emerging industry standards. Also, we must be able to act more
quickly than our competition.

Our software may be adversely affected by defects, which could cause our
customers or end users to stop using our solutions.

Our solutions are based upon new and complex software. Complex software often
contains defects, particularly when first introduced or when new versions are
released. Although we conduct extensive testing, we may not discover software
defects that affect our new or current solutions or enhancements until after
they are delivered. Although we have not experienced any material software
defects to date in our service offering, it is possible that, despite testing by
us, defects may exist in the software we sell. These defects could cause service
interruptions for our customers that could damage our reputation, create legal
risks, cause us to lose revenue, delay market acceptance or divert our
development resources, any of which could cause our business to suffer.

Investment Risks

We may need additional capital.

We have invested heavily in technology development. We expect to continue to
spend financial and other resources on developing and introducing new offerings
and maintaining our corporate organizations and strategic relationships. We also
expect to invest resources in research and development projects to develop
enhanced service provider messaging solutions.

Based on the cash balance at December 31, 2001, current projections of revenues,
related expenses, the sale of the Wingra subsidiary and completion of the
private investment round, the Company believes it has sufficient cash to
continue operations for at least the next twelve months.

We are subject to a class action lawsuit which may have a material adverse
effect on us.

Following our restatement of revenues for the first three quarters of 2000,
several class action lawsuits were filed in the United States District Court for
the Northern District of California against the Company and certain of our
officers and a director, alleging violations of the antifraud provisions of the
Securities Exchange Act of 1934 arising from the Company's financial statements.
These lawsuits were consolidated into one action in late 2001. Thereafter, the
Company filed a Motion to Dismiss, which has been granted, though the plaintiffs
have been granted leave to amend the complaint, which they have done. The
defendants have filed a Motion to Dismiss this amended complaint, and the matter
is set for review by the court in mid-June 2002. While we are unable to predict
the ultimate outcome of the consolidated claim, we believe that it is without
merit and intend to continue to vigorously defend ourselves.

If we cannot satisfy Nasdaq's maintenance requirements, it may delist our
ordinary shares and we may not have an active public market for our ordinary
shares, which would likely make our shares an illiquid investment.

Our ordinary shares are quoted on the Nasdaq National Market. To continue to be
listed, our shares must have a minimum bid price of $1.00 per share and we must
maintain a minimum market value of our publicly held shares of $5,000,000, among
other requirements. Our shares have a minimum bid price of less than $1.00 per
share and the minimum market value is under $5,000,000. Consequently, we do not
satisfy the Nasdaq listing requirements and may not be able to do so in the
future. Nasdaq has recently notified us that our stock may be delisted as of May
15, 2002. If this occurs, trading in the shares may be conducted in the
over-the-counter market in the so-called "pink sheets" or, if available, the
"OTC Bulletin Board Service." As a result, an investor would likely find it
significantly more difficult to dispose of, or to obtain accurate quotations as
to the value of, our shares.

Nasdaq also may delist our shares if it deems it necessary to protect investors
and the public interest.

If our shares are delisted, they may become subject to the SEC's "penny stock"
rules and be more difficult to sell.

SEC rules require brokers to provide information to purchasers of securities
traded at less than $5.00 and not traded on a national securities exchange or
quoted on the Nasdaq Stock Market. If our shares become "penny stock" that is
not exempt from these SEC rules, these disclosure requirements may have the
effect of reducing trading activity in our shares and making it more difficult
for investors to sell. The rules require a broker-dealer to deliver a
standardized risk disclosure document prepared by the SEC that provides
information about penny stocks and the nature and level of risks in the penny
market. The broker must also give bid and offer quotations and broker and
salesperson compensation information to the customer orally or in writing before
or with the confirmation. The SEC rules also require a broker to make a special
written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser's written agreement to the transaction
before a transaction in a penny stock.

Our directors, executive officers and principal shareholders will be able to
exert significant influence over matters requiring shareholder approval and
could delay or prevent a change of control.

Our directors and affiliates of our directors, our executive officers and our
shareholders who currently individually own over five percent of our ordinary
shares, beneficially own, in the aggregate, approximately 18.5% of our
outstanding ordinary shares. If they vote together, these shareholders will be
able to exercise significant influence over all matters requiring shareholder
approval, including the election of directors and approval of significant
corporate transactions. This concentration of ownership could also delay or
prevent a change in control of Commtouch.

Jan Eddy, the President and Chief Executive Officer of Wingra Technologies,
beneficially owns approximately 5% of our outstanding ordinary shares issued to
her in connection with our acquisition of Wingra Technologies on November 24,
2000.

InfoSpace beneficially owns approximately 5% of our outstanding ordinary shares.
InfoSpace merged with Go2Net in October 2000. In connection with this merger
InfoSpace assumed Go2Net shares, warrants and rights. In 1999, in connection
with entering into an email services agreement, we issued to InfoSpace a warrant
to purchase 1,136,000 ordinary shares at an exercise price of $12.80 per share.
Concurrent with Commtouch Inc. entering into the email services agreement, we
issued 896,057 ordinary shares to InfoSpace and 448,029 in ordinary shares to
Vulcan Ventures in a private placement at $14.88 per share. We believe that
Vulcan Ventures divested itself of all of its shareholdings in the Company. The
warrant is non-forfeitable, fully vested and immediately exercisable, and will
expire in July 2004. Assuming exercise of the InfoSpace warrant on a net
issuance basis, the warrant currently has no impact on beneficial ownership, as
the warrant is currently underwater.

Certain of the Selling Securityholders in this offering hold over 5% of our
outstanding ordinary shares (See "Selling Securityholders" below).

These significant shareholders will be able to significantly influence and
possibly exercise control over most matters requiring approval by our
shareholders, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may also have the effect
of delaying or preventing a change in control. InfoSpace will also have the
right to name one director to our Board as long as it continues to hold at least
620,022 shares, including the shares issuable upon exercise of the InfoSpace
warrant. It named Thomas Camp to the Board under this provision, who resigned on
August 22, 2001 and was not replaced by Infospace. In addition, conflicts of
interest may arise as a consequence of these significant shareholders control
relationship with us, including:

o conflicts between significant shareholders, and our other
shareholders whose interests may differ with respect to, among other
things, our strategic direction or significant corporate
transactions;

o conflicts related to corporate opportunities that could be pursued
by us, on the one hand, or by these shareholders, on the other hand;
or

o conflicts related to existing or new contractual relationships
between us, on the one hand, and these shareholders, on the other
hand.

Substantial sales of our ordinary shares could adversely affect our share price.

The sale, or availability for sale, of substantial quantities of our ordinary
shares may have the effect of further depressing its market price. A large
number of our ordinary shares which were previously subject to resale
restrictions, are currently eligible for resale. In addition a significant
number of shares will be eligible for resale at various dates in the future
pursuant to this Registration Statement.

The shares issued to the Selling Securityholders will dilute existing
shareholders.

Risk of failure to obtain registration rights for the private placement

According to the agreement with the Selling Securityholders, should the Company
fail to meet certain deadlines for filing the Registration Statement and
achieving the effectiveness thereof, the Company risks having imposed on it
liquidated damages as defined in the agreement.

Intellectual Property Risks

If we fail to adequately protect our intellectual property rights or face a
claim of intellectual property infringement by a third party, we could lose our
intellectual property rights or be liable for significant damages.

We regard our copyrights, service marks, trademarks, trade secrets and similar
intellectual property as critical to our success, and rely on trademark and
copyright law, trade secret protection and confidentiality or license agreements
with our employees and customers to protect our proprietary rights. Third
parties may infringe or misappropriate our copyrights, trademarks and similar
proprietary rights. Although we have not filed any patent applications, we may
seek to patent certain software or other technology in the future. Any such
future patent applications may not be issued within the scope of the claims we
seek, or at all. We cannot be certain that our software does not infringe issued
patents that may relate to our software products. In addition, because patent
applications in the United States are not publicly disclosed until the patent is
issued, applications may have been filed which relate to our software products.

Despite our precautions, unauthorized third parties may copy certain portions of
our technology or reverse engineer or obtain and use information that we regard
as

proprietary. In addition, the laws of some foreign countries do not protect
proprietary rights to the same extent as do the laws of the United States. Our
means of protecting our proprietary rights in the United States or abroad may
not be adequate and competitors may independently develop similar technology.

Governmental regulation and legal uncertainties could impair the growth of the
internet and decrease demand for our software messaging solutions or increase
our cost of doing business.

There are currently few laws and regulations directly applicable to the internet
and commercial email services. However, a number of laws have been proposed
involving the internet, including laws addressing user privacy, pricing,
content, copyright, antitrust, distribution and characteristics and quality of
products and services. Further, the growth and development of the market for
email may prompt calls for more stringent consumer protection laws that may
impose additional burdens on companies conducting business online. Moreover, the
applicability to the internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve. The adoption of
additional laws or regulations, or the application of existing laws or
regulations to the internet, may impair the growth of the internet or commercial
online services. This could decrease the demand for our software and increase
our cost of doing business, or otherwise harm our business and operating
results.

Risks Relating to Operations in Israel

We have important facilities and resources located in Israel, which has
historically experienced severe economic instability and military and political
unrest.

We are incorporated under the laws of the State of Israel. Our principal
research and development facilities are located in Israel. Although
substantially all of our past sales were made to customers outside Israel, we
are nonetheless directly influenced by the political, economic and military
conditions affecting Israel. Any major hostilities involving Israel, or the
interruption or curtailment of trade between Israel and its present trading
partners, could significantly harm our business, operating results and financial
condition.

Israel's economy has been subject to numerous destabilizing factors, including a
period of rampant inflation in the early to mid-1980's, low foreign exchange
reserves, fluctuations in world commodity prices, military conflicts and civil
unrest. In addition, Israel and some companies doing business with Israel have
been the subject of an economic boycott by Arab countries since Israel's
establishment. These restrictive laws and policies may have an adverse impact on
our operating results, financial condition or expansion of our business.

Since the establishment of the State of Israel in 1948, a state of hostility has
existed, varying in degree and intensity, between Israel and certain Arab
countries. Since September 2000, a continuous armed conflict with the
Palestinian Authority has been taking place. Although Israel has entered into
various agreements with certain Arab countries and the Palestinian Authority,
and various declarations have been signed in connection with efforts to resolve
some of the economic and political problems in the Middle East, Israel continues
to face hostile actions and threats from various elements in the region. We
cannot predict whether or in what manner these problems will be resolved.

Our results of operations may be negatively affected by the obligation of key
personnel to perform military service.

Certain of our officers and employees are currently obligated to perform annual
reserve duty in the Israel Defense Forces and are subject to being called for
active military duty at any time. Although Commtouch has operated effectively
under these requirements since its inception, we cannot predict the effect of
these obligations on Commtouch in the future. Our operations could be disrupted
by the absence, for a significant period, of one or more of our officers or key
employees due to military service.

Because a substantial portion of our revenues are generated in U.S. dollars and
a portion of our expenses are incurred in New Israeli Shekels, our results of
operations may be adversely affected by inflation and currency fluctuations.

We generate a substantial portion of our revenues in U.S. dollars and incur a
portion of our expenses, principally salaries and related personnel expenses in
Israel, in New Israeli Shekels, commonly referred to as NIS. As a result, we are
exposed to the risk that the rate of inflation in Israel will exceed the rate of
devaluation of the NIS in relation to the dollar or that the timing of any
devaluation may lag behind inflation in Israel. While in recent years the rate
of devaluation of the NIS against the dollar has generally exceeded the rate of
inflation, which is a reversal from prior years, we cannot be sure that this
reversal will continue. If the dollar cost of our operations in Israel
increases, our dollar-measured results of operations will be adversely affected.
Our operations also could be adversely affected if we are unable to guard
against currency fluctuations in the future. Accordingly, we may enter into
currency hedging transactions to decrease the risk of financial exposure from
fluctuations in the exchange rate of the dollar against the NIS. These measures,
however, may not adequately protect us from material adverse effects due to the
impact of inflation in Israel.

The Government programs and benefits which we currently receive require us to
meet several conditions and may be terminated or reduced in the future.

Prior to 1998, we received grants from the Government of Israel, through the
Office of the Chief Scientist, or the OCS, for the financing of a significant
portion of our research and development expenditures in Israel. In 2001 and
2002, we applied for additional grants and we may apply for additional grants in
the future. In 1999 and 2000, we did not receive any grants from the OCS. In
2001 we received $0.6 million and we expect the percentage of our research and
development expenditures financed from OCS grants will continue to remain quite
low. The OCS budget has been subject to reductions which may affect the
availability of funds for these grants in the future. Therefore, we cannot be
certain that we will continue to receive grants at the same rate, or at all. In
addition, the terms of any future OCS grants may be less favorable than our past
grants. In connection with research and development grants received from the
OCS, we must pay royalties to the OCS on the revenue derived from the sale of
products, technologies and services developed with grants from the OCS.

The terms of the OCS grants and the law pursuant to which the grants are made
restrict our ability to manufacture products or transfer technologies developed
using OCS grants outside of Israel. This restriction may limit our ability to
enter into agreements for those products or technologies, without OCS approval.
We cannot be certain that the approvals of the OCS will be obtained on terms
that are acceptable to us, or at all. In connection with our grant applications,
we have made representations and covenants to the OCS. The funding from the OCS
is subject to the accuracy of these representations and covenants and to our
compliance with the conditions and restrictions imposed by the OCS. If we fail
to comply with any of these conditions or restrictions, we could be required to
repay any grants previously received, together with interest and penalties, and
would likely be ineligible to receive OCS grants in the future.

The projects for which we received grants from the OCS prior to 1998 ultimately
failed and the relevant payments were made for the revenues generated from these
projects. The Company will not be obligated to pay future royalties for such
projects through 2001, since no future revenue is expected from these projects.
Accordingly, the Company decided to write down the $0.4 million accrual it
recorded in past years and determined that as of December 31, 2001 there are no
contingent liabilities for royalties from these projects. In March 2002, the
Company submitted an application for project failure with regard to these
projects. However, the ultimate liability is subject to the review of the
Government of Israel. With regard to the grant received in 2001, a contingent
liability of $0.6 million exists.

The tax benefits we are currently entitled to from the Government of Israel may
be reduced or terminated in the future.

Pursuant to the Law for the Encouragement of Capital Investments, the Government
of Israel through the Investment Center has granted "approved enterprise" status
to a portion of our capital investment programs. The portion of our income
derived from our approved enterprise program will be exempt from tax for a
limited period of two years commencing in the first year in which we have
taxable income, and will be subject to a reduced tax for an additional period of
five to eight years dependent on the percentage of foreign shareholders. The
benefits available to an approved enterprise are conditioned upon the
fulfillment of conditions regarding a required amount of investments in fixed
assets and a portion of these investments being made with net proceeds of equity
capital raised by us as stipulated in applicable law and in the specific
certificates of approval. If we fail to comply with these conditions, in whole
or in part, we may be required to pay additional taxes for the period in which
we benefited from the tax exemption or reduced tax rates and would likely be
denied these benefits in the future. From time to time, the Government of Israel
has discussed reducing or eliminating the benefits available under the approved
enterprise program. It is possible that these tax benefits may not be continued
in the future at their current levels or at all.

Israeli courts might not enforce judgments rendered outside of Israel and it
might therefore be difficult for an investor to recover any judgment against any
of our officers or directors resident in Israel.

We are organized under the laws of Israel, and we maintain significant
operations in Israel. Certain of our officers and directors named in this
prospectus reside outside of the United States. Therefore, you might not be able
to enforce any judgment obtained in the U.S. against us or any of such persons.
You might not be able to bring civil actions under U.S. securities laws if you
file a lawsuit in Israel. However, we have been advised by our Israeli counsel
that, subject to certain limitations, Israeli courts may enforce a final
judgment of a U.S. court for liquidated amounts in civil matters after a hearing
in Israel. We have appointed Commtouch Software Inc., our U.S. subsidiary, as
our agent to receive service of process in any action against us arising from
this prospectus. We have not given our consent for our agent to accept service
of process in connection with any other claim and it may therefore be difficult
for an investor to effect service of process against us or any of our non-U.S.
officers, directors and experts relating to any other claims. If a foreign
judgment is enforced by an Israeli court, it may be payable in Israeli currency.

Provisions of Israeli law may delay, prevent or make difficult an acquisition of
Commtouch, which could prevent a change of control and therefore depress the
price of our shares.

Israeli corporate law regulates mergers, votes required to approve mergers and
acquisitions of shares through tender offers, requires special approvals for
transactions involving significant shareholders and regulates other matters that
may be relevant to these types of transactions. Furthermore, Israel tax
considerations may make potential transactions unappealing to us or to some of
our shareholders.

Proposed tax reform in Israel may reduce our tax benefits, which might adversely
affect our profitability.

On May 4, 2000, a committee chaired by the former Director General of the
Israeli Ministry of Finance issued a report recommending a sweeping reform in
the Israeli system of taxation. The proposed reform would significantly alter
the taxation of individuals, and would also affect corporate taxation. In
particular, the proposed reform would reduce, but not eliminate, the tax
benefits available to approved enterprises such as ours. The Israeli cabinet
approved the recommendations in principle, but implementation of the reform
requires legislation by Israel's Knesset. In the interim there have been
significant political and economic changes. On February 26, 2002 the Minister of
Finance appointed a new committee to recommend tax reforms, and this committee
is expected to submit a report within 90 days. The Company cannot be certain
whether the proposed reform will be adopted, when it will be adopted or what
form any reform will ultimately take.

You should rely only on the information contained in this prospectus. We have
not authorized any other person to provide you with different information. This
prospectus is not an offer to sell, nor is it seeking an offer to buy, these
securities in any jurisdiction where the offer or sale is not permitted. The
information in this prospectus is complete and accurate as of the date on the
front cover, but the information may have changed since that date.

-------------------------------

THE OFFER AND LISTING

The Offering

Ordinary shares offered ................................ 7,095,886 shares

Ordinary shares outstanding after the offering ......... 24,766,322 shares
prior to the offering on April 16, 2002 of 22,105,367] [based on ordinary
shares outstanding

Use of proceeds ........................................ We will not receive
any of the proceeds
from the sale of the
shares by the Selling
Securityholders in
this offering.

NASDAQ National Market Symbol .......................... CTCH

--------------
Shares will be offered on a registered basis and not as bearer shares.

Except as otherwise specified, all information in this prospectus is based on
the number of shares outstanding as of December 31, 2001, and:

o assumes the issuance of 298,538 ordinary shares issuable upon
exercise of options granted to executive officers and directors
within 60 days of December 31, 2001 at a weighted average exercise
price of $0.31 per share; and

o with respect to financial information, is reported in U.S. dollars;

and does not include:

o 2,915,689 ordinary shares issuable to employees and consultants upon
exercise of outstanding options under our stock option plans and
stock option agreements as of December 31, 2001 at aweighted average
exercise price of $0.46; and

o 2,303,885 ordinary shares available for future grant or issuance
under our stock option and stock purchase plans as of December 31,
2001.

Market Information

The Company's Ordinary Shares have traded publicly on The Nasdaq Stock Market
under the symbol "CTCH" since July 13, 1999.

The following table lists the high and low closing sales prices for the
Company's Ordinary Shares, for the periods indicated, as reported by The Nasdaq
Stock Market:

High Low
-------- --------
1999:
Third Quarter (beginning July 13, 1999) $ 22.625 $11.0625
Fourth Quarter 14.3125 49.125

2000:
First Quarter $ 66.50 $35.5625
Second Quarter 14.625 38.5625
Third Quarter 16.50 33.9375
Fourth Quarter $ 19.25 $ 7.44

High Low
-------- --------
2001:
First Quarter $ 3.81 $ 0.75
Second Quarter 1.19 0.28
Third Quarter 0.67 0.20
Fourth Quarter $ 0.46 $ 0.20
2002:
First Quarter $ 0.43 $ 0.23

Most Recent Six Months:

November 2001 $ 0.46 0.20
December 2001 0.35 0.25
January 2002 0.43 0.24
February 2002 0.36 0.25
March 2002 0.29 0.23
April 2002 0.25 0.16
-------- --------

REASONS FOR THE OFFER AND USE OF PROCEEDS

We will not receive any proceeds from the sale of the shares by the Selling
Securityholders in this offering.

SELLING SECURITYHOLDERS

The following table presents information provided by the Selling Securityholders
with respect to beneficial ownership of our ordinary shares as of April 16,
2002, and as adjusted to reflect the sale of the shares offered by this
prospectus, by the Selling Securityholders and assumes that all shares being
offered by this prospectus are ultimately sold in the offering.

The table includes all shares issuable within 60 days of April 16, 2002 upon the
exercise of options, warrants and other rights beneficially owned by the
indicated shareholders on that date. Beneficial ownership as set forth below
includes the power to direct the voting or the disposition of the securities or
to receive the economic benefit of ownership of the securities. To our
knowledge, except for individuals affected by applicable community property laws
or as otherwise indicated, the persons named in the table have sole voting, sole
investment control and sole right to receive the economic benefit with respect
to all shares listed. The applicable percentage of ownership for each
shareholder is based on 22,105,367 ordinary shares outstanding as of April 16,
2002 and 24,766,322 ordinary shares outstanding immediately following the
completion of this offering, together with applicable options and/or warrants
for that shareholder that are exercisable within 60 days of April 16, 2002.

------------------------------------------------------------------------------------------------------------
Shares
Shares Beneficially to be Shares Beneficially
Owned Prior to Offering Offered Owned After Offering
------------------------------------------------------------------------------------------------------------
Percent of Percent of
Outstanding Outstanding
Name of Beneficial Owner Number Shares Number Number Shares
------------------------------------------------------------------------------------------------------------

Ehud Hillman 138,985 .62 136,985 2,000 .008
I.D. No. 051745818
Amirim 12, Tel-Aviv,
Israel-69357
------------------------------------------------------------------------------------------------------------
Gil Agmon 136,985 .61 136,985 0 0
Barazani 11, Ramat Aviv, Tel
Aviv, Israel
ID No: 570261822
------------------------------------------------------------------------------------------------------------
Jacob Benasayag 136,985 .61 136,985 0 0
I.D. No. 16538100
Haduhifat 41, Raanana, Israel
------------------------------------------------------------------------------------------------------------

Arie Pundak 136,985 .61 136,985 0 0
I.D. No. 065178444
Asher Bar-Lev 5/13
Petach-Tikva, Israel
------------------------------------------------------------------------------------------------------------
Danitan Nihul Ltd. 161,985 .73 136,985 25,000 .1
Reg. No. 511718470
Lamerhav 53b', Ramat Hasharon,
Israel - 47226
------------------------------------------------------------------------------------------------------------
Gideon Mantel 1/ 1,656,920 7.32 1,123,288 533,632 2.147
c/o Commtouch Software, Inc.
1300 Crittenden Lane, Ste. 102
Mountain View, CA 94043-4655
------------------------------------------------------------------------------------------------------------
Amir Lev 1/ 648,599 2.9 273,974 374,625 1.507
Be'er Gan St. 17
Ein Vered, 40696 Israel
------------------------------------------------------------------------------------------------------------
Nahum Sharfman 2/ 1,314,067 5.84 931,506 382,561 1.544
22 Hameyasdim St.
Karkur, Israel 37064
------------------------------------------------------------------------------------------------------------
Origami Ltd. 547,945 2.45 547,945 0 0
57 Achad Ha'am St.
Tel Aviv, CA 65207
------------------------------------------------------------------------------------------------------------
Dr. A.I. Mlavsky 273,974 1.23 273,974 0 0
c/o Gemini Israel Venture
Funds Ltd.
9 Hamenofim Street
Herzliya 46725, Israel
------------------------------------------------------------------------------------------------------------
Yossi Sela 273,974 1.23 273,974 0 0
c/o Gemini Israel Venture Funds
Ltd.
9 Hamenofim Street
Herzliya 46725, Israel
------------------------------------------------------------------------------------------------------------
OZF Ltd. 1,643,834 7.23 1,643,834 0 0
Tropic Isle Building
Wickhams Cay, P.O. Box 964
Road Town, Tortola, British
Virgin Islands
c/o Tis Prager, Prager
Dreifuss, Muehlebachstr. 6,
CH-8008 Zurich, Switzerland
------------------------------------------------------------------------------------------------------------
Victor Haim Amara 548,345 2.45 547,945 400 .002%
Marcus St. 8
Jerusalem, 92333 Israel
------------------------------------------------------------------------------------------------------------
Shmuel Sagi 628,945 2.81 547,945 81,000 .327
PO Box 589
Karkur, 37105 Israel
------------------------------------------------------------------------------------------------------------
McCutchen, Doyle, Brown & 246,576 1.11 246,576 0 0
Enersen 3/
Three Embarcadero Center
San Francisco, CA 94111
------------------------------------------------------------------------------------------------------------
TOTALS 8,495,104 34.04 7,095,886 1,399,218 5.607
------------------------------------------------------------------------------------------------------------

1/ Messrs. Mantel and Lev are, respectively, Chief Executive Officer and
director, and President, Chief Technology Officer and director, of Commtouch.

2/ Mr. Sharfman is a director of Commtouch.

3/ McCutchen, Doyle, Brown & Enersen, LLP represents Commtouch in U.S. corporate
and securities matters and has passed upon certain legal matters for Commtouch
in connection with this offering (See "Legal Matters" below).

SHARES ELIGIBLE FOR FUTURE SALE

Freely Tradeable Shares--Registered Shares

Future sales of substantial amounts of our ordinary shares in the public market,
or the possibility of these sales occurring, could adversely affect prevailing
market prices for our ordinary shares or our future ability to raise capital
through an offering of equity securities.

As of December 31, 2001 we had 17,496,819 ordinary shares outstanding. The
3,450,000 ordinary shares sold in our initial public offering in July 1999; the
1,344,086 ordinary shares and the 1,136,000 shares underlying a warrant held by
InfoSpace and Vulcan Ventures registered in 2000 in a secondary offering along
with the 707,965 ordinary shares we issued to Microsoft Corporation; the 315,789
shares we issued to Rideau Ltd., a private investor, on June 30, 2001; and the
1,406,612 shares registered in August 2001 in a secondary offering for
shareholders of Wingra, a former subsidiary of the Company, are all freely
tradable in the public market without restriction under the Securities Act,
unless the shares are held by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act. In addition, the 7,095,886 shares
to which this prospectus relates will also be freely tradeable without
restriction, unless otherwise indicated in the related prospectus supplement.

We have 3,684,211 shares remaining under an effective shelf Registration
Statement on file with the SEC, all of which will be freely tradeable when, as
and if issued.

Pursuant to our stock purchase agreement with Hughes Holdings L.L.C., dated June
5, 2001, Commtouch intended to sell 850,000 ordinary shares in increments of at
least $250,000 worth of ordinary shares per week. Hughes was also granted an
option to purchase an additional 1,400,000 ordinary shares, plus warrant
coverage of 10%. With the price per ordinary share having fallen below $0.75,
Hughes had the right and chose not to fund the transactions. Despite the above,
the agreement has not formally terminated. Any shares issued to Hughes will
originate from our shelf Registration Statement. The shares which may be issued
to Hughes, if issued, will be freely tradeable, as will the shares underlying
any warrants which we may issue to Hughes for 85,000 shares and 140,000 shares,
respectively, in connection with these two potential purchases.

Freely Tradeable Shares--Shares Under Employee Benefit Plans

On January 20, 2000, we filed a Form S-8 Registration Statement under the
Securities Act to register 5,400,000 ordinary shares issuable in connection with
option exercises and shares reserved for issuance under all stock plans and
agreements as well as 150,000 ordinary shares under the Company's Employee Stock
Purchase Plan which the Company may issue to employees from time to time. The
Company also issues employee and director stock options from time to time. Such
options are subject to vesting periods after which the shares may be resold by
the holders, subject to Rule 144 limitations if the holder is an affiliate. Of
_4,772,358 options issued, _281,830 option shares were vested and unexercised as
of December 31, 2001 and 1,262,514 options had been exercised. On July 20, 2001,
the Company filed another Form S-8 Registration Statement to register: an
additional 250,000 of our ordinary shares approved by our shareholders on August
10, 2000 for issuance under the Company's director stock option plan; an
additional 79,156 shares issuable under our Employee Stock Purchase Plan; and
162,257 shares underlying options issuable to employees of Wingra pursuant to
the terms of the Wingra merger agreement and the Wingra Technologies, LLC 1998
Unit Option Plan.

On April 30, 2001 our Board of Directors approved the "repricing" of outstanding
stock options previously granted to employees. Previously granted options were
subsequently cancelled and new options issued with an exercise price equal to
the

$0.0125 per share par value of the shares. Unexercised options subject to the
repricing had an original exercise price of more than $10 per share. The
replacement options vest over three years with 1/3 vesting on February 15, 2002
and the remaining 2/3 vesting every six months for the next two years. The
decreased option exercise price is lower than the current market price of our
stock which may cause optionees to exercise options and immediately resell the
shares received in the exercise on the open market, which may cause downward
pressure on the price of the shares. Options to purchase 1,521,988 shares were
covered by this repricing.

Restricted Shares--Rule 144

The remaining ordinary shares outstanding upon completion of this offering will
be "restricted securities" as that term is defined under Rule 144. We issued and
sold these restricted securities in private transactions in reliance on
exemptions from registration under the Securities Act. Restricted securities may
be sold in the public market only if they are registered or if they qualify for
an exemption from registration under Rule 144 or Rule 701 under the Securities
Act, as summarized below. We believe that the majority of these shares may
fulfill the requirements of Rule 144(k).

Most of the restricted shares are subject to certain volume and other resale
restrictions pursuant to Rule 144 because the holders are affiliates of
Commtouch. In general, under Rule 144, an affiliate of Commtouch, or a person
(including a group of related persons whose shares must be aggregated under the
Rule) who has beneficially owned restricted shares for at least one year, will
be entitled to sell in any three-month period a number of shares that does not
exceed the greater of

o 1% of the then outstanding ordinary shares (approximately 176,704
shares immediately following completion of the offering), or

o the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the
Commission.

Sales pursuant to Rule 144 are subject to certain requirements relating to
manner of sale, notice and availability of current public information about
Commtouch. A person who was not an affiliate of Commtouch for 90 days before the
sale and who has beneficially owned the shares for at least two years may sell
under Rule 144(k) without regard to the above limitations.

Additional Restrictions

In addition to the restrictions imposed by the securities laws, 670,180
restricted shares were issued to certain Commtouch employees under agreements
which give Commtouch Inc. a repurchase option on any unvested shares. The
repurchase option lapses ratably over time. As of December 31, 2001,
approximately 6,308 ordinary shares are subject to repurchase.

OFFER STATISTICS AND EXPECTED TIMETABLE AND PLAN OF DISTRIBUTION

The Selling Securityholders may sell, directly or through brokers, the ordinary
shares in one or more long or short transactions at fixed prices, at market
prices at the time of sale, at varying prices determined at the time of sale or
at negotiated prices.

Although none of the Selling Securityholders has advised us of the manner in
which such Securityholder currently intends to sell ordinary shares offered
hereby, the Selling Securityholders may choose to sell all or a portion (or
none) of such shares from time to time in one or more of the following
transactions:

o On any national securities exchange or quotation service on which
the ordinary shares may be listed or quoted at the time of sale,
including the Nasdaq National Market;

o In the over-the-counter market;

o In private transactions;

o Through options or other derivative instruments;

o By pledge to secure debts or other obligations;

o Through block transactions;

o Any other legally available means; or

o A combination of any of the above transactions.

In connection with such sales, the Selling Securityholders and any participating
broker may be deemed to be "underwriters" of the shares within the meaning of
the Securities Act, although the offering of these securities may not be
underwritten by a broker-dealer firm. If a Selling Securityholder qualifies as
an "underwriter" under the Securities Act and the rules and regulations and
interpretations thereunder, such person will be subject to the prospectus
delivery requirements of the Act. Such broker-dealers may receive compensation
in the form of underwriting discounts, concessions or commissions from the
Selling Securityholders. Any such commissions and profits realized on any resale
of the shares might be deemed to be underwriting discounts and commissions under
the Securities Act. Sales in the market may be made to broker-dealers making a
market in the ordinary shares or other broker-dealers, and such broker-dealers,
upon their resale of such securities, may be deemed to be underwriters in this
offering.

In addition, any ordinary shares offered by this prospectus that qualify for
sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144
rather than pursuant to this prospectus.

The Company will bear all costs and expenses of the registration under the
Securities Act and certain state securities laws of the ordinary shares, other
than any discounts or commissions payable with respect to sales of such
securities.

From time to time this prospectus may be supplemented or amended as required by
the Securities Act. During any time when a supplement or amendment is required,
the Selling Securityholders are required to stop making sales until the
prospectus has been supplemented or amended. Further, the Company is required to
maintain the effectiveness of the Registration Statement until the earlier of
(i) the date that all of the shares offered hereby have been sold pursuant to
this prospectus, (ii) the date the Selling Securityholders receive an opinion
from counsel to the Company that the shares offered hereby may be sold under the
provisions of Rule 144 without limitation as to volume, (iii) the date that all
shares offered hereby have been otherwise transferred to persons who may trade
such shares without restriction under the Securities Act, and the Company has
delivered a new certificate or other evidence of ownership for such shares not
bearing a restrictive legend, or (iv) eighteen months from the date the
Registration Statement of which this prospectus is a part became effective.

We will make copies of this prospectus available to the Selling Securityholders
and have informed the Selling Securityholders of the need for delivery of a copy
of this prospectus to each purchaser of the ordinary shares prior to or at the
time of such sale.

Pursuant to the terms under which the ordinary shares were issued to the Selling
Securityholders, the Company has agreed to indemnify the Selling Securityholders
and certain of their associates against such liabilities as they may incur as a
result of any untrue statement of a material fact in the Registration Statement,
or any omission therein to state a material fact required to be stated therein
or necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading. Such indemnification
includes liabilities under the Securities Act, the Securities Exchange Act of
1934, as amended (the "Exchange Act"), state securities laws and the rules
thereunder, but excludes liabilities for statements or omissions that were based
on written information provided by or on

behalf of the Selling Securityholders specifically for use in the Registration
Statement, as to which the Selling Securityholders have agreed to indemnify the
Company. The Company has also agreed to reimburse such persons for legal and
other expenses reasonably incurred in connection with investigating or defending
any action relating to such statements or omissions which result in such
persons' becoming entitled to such indemnification.

Each Selling Securityholder and any other persons participating in a
distribution of securities will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which may restrict certain activities of, and limit
the timing of purchases and sales of securities by, Selling Securityholders and
other persons participating in a distribution of securities. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distribution, subject to specified exceptions or
exemptions. All of the foregoing may affect the marketability of the securities
offered hereby.

Expenses Associated with Registration

We are paying substantially all of the expenses of registering the ordinary
shares under the Securities Act and of compliance with blue sky laws, including
registration and filing fees, printing and duplication expenses, administrative
expenses, our legal and accounting fees and the legal fees of counsel on behalf
of the Selling Securityholders. We estimate these expenses to be approximately
$85,000, which include the following categories of expenses:

SEC registration fee ............................... $104.45*
Printing and engraving expenses .................... 10,000
Legal fees and expenses ............................ 50,000
Accounting fees and expenses ....................... 10,000
Transfer agent and registrar fees and expenses ..... 10,000
Miscellaneous expenses ............................. 4,895.55
--------
Total .............................................. $85,000

_____________
*This fee is being offset against the filing fee previously paid for
Registration No. 333-31836, which was withdrawn prior to effectiveness.

==========

LEGAL MATTERS

Certain legal matters with respect to United States law are being passed upon
for Commtouch by McCutchen, Doyle, Brown & Enersen, LLP, San Francisco,
California which is also a Selling Securityholder in this offering. The validity
of the ordinary shares offered hereby is being passed upon for Commtouch by
Naschitz, Brandes & Co., Tel-Aviv, Israel. The partners of Naschitz, Brandes &
Co. and McCutchen, Doyle, Brown & Enersen, LLP, respectively, and the firms
themselves, beneficially own, in the aggregate, 15,000 and 246,576 outstanding
shares of the Company, including upon exercise of options, warrants or other
derivative securities.

EXPERTS

The Consolidated statements of Commtouch Software Ltd. appearing in Commtouch
Software Ltd's Annual Report (Form 20-F) for the year ended December 31, 2001,
have been audited by Kost Forer & Gabbay, a member of Ernst & Young
International, independent auditors, as set fourth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed a Registration Statement on Form F-3 with the SEC for the shares
we are offering by this prospectus. This prospectus does not include all of the
information contained in the Registration Statement. You should refer to the
Registration Statement and its exhibits for additional information. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits attached to the Registration Statement for copies of the actual
contract, agreement or other document.

We are required to file annual and special reports and other information with
the SEC. You can read our SEC filings, including the Registration Statement,
over the Internet at the SEC's web site at http://www.sec.gov. You may also read
and copy any document we file with the SEC at its public reference facilities at
450 Fifth Street, NW, Washington, DC 20549. You may also obtain copies of the
documents at prescribed rates by writing to the Public Reference Section of the
SEC at 450 Fifth Street, NW, Room 1024, Washington, DC 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the operation of the public
reference facilities. Our SEC filings are also available at the office of the
Nasdaq National Market. For further information on obtaining copies of our
public filings at the Nasdaq National Market, you should call (212) 656-5060.

We are subject to certain of the informational requirements of the Exchange Act.
As a "foreign private issuer," we are exempt from the rules under the Exchange
Act prescribing certain disclosure and procedural requirements for proxy
solicitations and our officers, directors and principal shareholders are exempt
from the reporting and "short-swing" profit recovery provisions contained in
Section 16 of the Exchange Act, with respect to their purchases and sales of
ordinary shares. In addition, we are not required to file quarterly reports or
to file annual and current reports and financial statements with the Securities
and Exchange Commission as frequently or as promptly as U.S. companies whose
securities are registered under the Exchange Act. However, we intend to file
with the Securities and Exchange Commission, within 180 days after the end of
each fiscal year, an annual report on Form 20-F containing financial statements
that will be examined and reported on, with an opinion expressed by an
independent accounting firm, as well as quarterly reports on Form 6-K containing
unaudited financial information for the first three quarters of each fiscal
year, within 60 days after the end of each such quarter.

INFORMATION INCORPORATED BY REFERENCE

The SEC allows us to "incorporate by reference" information into this
prospectus. This means that we can disclose important information to you by
referring you to another document filed by us with the SEC. Information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by this prospectus or by information we file with the
SEC in the future.

The following documents are incorporated by reference:

(a) Our Annual Report on Form 20-F for the fiscal year ended December 31, 2001;

(b) The description of our ordinary shares contained in the Registration
Statement under the Exchange Act on Form 8-A as filed with the Commission on
June 25, 1999, and any subsequent amendment or report filed for the purpose of
updating this description.

In addition, all subsequent annual reports filed on Form 20-F prior to the
termination of this offering are incorporated by reference into this prospectus.
Also, we may incorporate by reference our future reports on Form 6-K by stating
in those Forms that they are being incorporated by reference into this
prospectus.

We will provide without charge to any person (including any beneficial owner) to
whom this prospectus has been delivered, upon oral or written request, a copy of
any document incorporated by reference in this prospectus but not delivered with
the prospectus (except for exhibits to those documents unless a document states
that one of its exhibits is incorporated into the document itself). Such
requests should be directed to Devyani Patel, Vice President, Finance, c/o
Commtouch Inc., 1300 Crittenden Lane, Suite # 102, Mountain View, California
94043. Our corporate website address is http://www.commtouch.com. The
information on our website is not intended to be a part of this prospectus.

ENFORCEABILITY OF CIVIL LIABILITIES

We are incorporated in Israel, and many of our directors and many of the
executive officers and the Israeli experts named herein are not residents of the
United States and substantially all of their assets and our assets are located
outside the United States. Service of process upon our non-U.S. resident
directors and executive officers or the Israeli experts named herein and
enforcement of judgments obtained in the United States against us, and our
directors and executive officers, or the Israeli experts named herein, may be
difficult to obtain within the United States. Commtouch Inc. is the U.S. agent
authorized to receive service of process in any action against us arising out of
this offering or any related purchase or sale of securities. We have not given
consent for this agent to accept service of process in connection with any other
claim.

We have been informed by our legal counsel in Israel, Naschitz, Brandes & Co.,
that there is doubt as to the enforceability of civil liabilities under the
Securities Act or the Exchange Act in original actions instituted in Israel.
However, subject to certain time limitations, an Israeli court may declare a
foreign civil judgment enforceable if it finds that:

* the judgment was rendered by a court which was, according to the
laws of the state of the court, competent to render the judgment,

* the judgment is no longer appealable,

* the obligation imposed by the judgment is enforceable according to
the rules relating to the enforceability of judgments in Israel and
the substance of the judgment is not contrary to public policy, and

* the judgment is executory in the state in which it was given.

Even if the above conditions are satisfied, an Israeli court will not enforce a
foreign judgment if it was given in a state whose laws do not provide for the
enforcement of judgments of Israeli courts (subject to exceptional cases) or if
its enforcement is likely to prejudice the sovereignty or security of the State
of Israel. An Israeli court also will not declare a foreign judgment enforceable
if (i) the judgment was obtained by fraud, (ii) there was no due process, (iii)
the judgment was rendered by a court not competent to render it according to the
laws of private international law in Israel, (iv) the judgment is at variance
with another judgment that was given in the same matter between the same parties
and which is still valid, or (v) at the time the action was brought in the
foreign court a suit in the same matter and between the same parties was pending
before a court or tribunal in Israel. Judgments rendered or enforced by Israeli
courts will generally be payable in Israeli currency. Judgment debtors bear the
risk associated with converting their awards into foreign currency, including
the risk of unfavorable exchange rates.

7,095,886 Ordinary Shares

COMMTOUCH SOFTWARE LTD.

-----------------------

PROSPECTUS

-----------------------

, 2002

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 8. Indemnification of Directors and Officers.

Israeli law permits a company to insure an Office Holder in respect of
liabilities incurred by him or her as a result of the breach of his or her duty
of care to the company or to another person, or as a result of the breach of his
or her fiduciary duty to the company, to the extent that he or she acted in good
faith and had reasonable cause to believe that the act would not prejudice the
company. A company can also insure an Office Holder for monetary liabilities as
a result of an act or omission that he or she committed in connection with his
or her serving as an Office Holder. Moreover, a company can indemnify an Office
Holder for (a) monetary liability imposed upon him or her in favor of other
persons pursuant to a court judgment, including a compromise judgment or an
arbitrator's decision approved by a court and (b) reasonable litigation
expenses, including attorneys' fees, actually incurred by him or her or imposed
upon him or her by a court, in an action, suit or proceeding brought against him
or her by or on behalf of the company or other persons, or in connection with a
criminal action which does not require criminal intent in which he or she was
convicted, in each case in connection with his or her activities as an Office
Holder.

Our Articles of Association allow us to insure and indemnify Office Holders to
the fullest extent permitted by law provided such insurance or indemnification
is approved in accordance with the Israel Companies Law. The Company has
acquired directors' and officers' liability insurance covering the officers and
directors of the Company and its subsidiaries for certain claims. In addition,
the Company has entered into an undertaking to indemnify the directors of the
Company subject to certain limitations, and this undertaking has been ratified
by our shareholders.

Certain members of our management team are officers of our subsidiary, Commtouch
Inc., a California Corporation, or reside in California. The Articles of
Incorporation of Commtouch Inc. provide that the liability of the directors of
the corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law and that the corporation is authorized to
provide for the indemnification of agents of the corporation, as defined in
Section 317 of the California General Corporation Law, in excess of that
expressly permitted by Section 317 for breach of duty to the corporation and its
shareholders to the fullest extent permissible under California law.

With respect to all proceedings other than shareholder derivative actions,
Section 317 permits a California corporation to indemnify any of its directors,
officers or other agents only if such person acted in good faith and in a manner
such person reasonably believed to be in the best interests of the corporation
and, in the case of a criminal proceeding, had no reasonable cause to believe
the conduct of such person was unlawful. In the case of derivative actions, a
California corporation may indemnify any of its directors, officers or agents
only if such person acted in good faith and in a manner such person believed to
be in the best interests of the corporation and its shareholders. Furthermore,
in derivative actions, no indemnification is permitted (i) with respect to any
matter with respect to which the person to be indemnified has been held liable
to the corporation, unless such indemnification is approved by the court; (ii)
of amounts paid in settling or otherwise disposing of a pending action without
court approval; or (iii) of expenses incurred in defending a pending action
which is settled or otherwise disposed of without court approval. To the extent
that a director, officer or agent of a corporation has been successful on the
merits in defense of any proceeding for which indemnification is permitted by
Section 317, a corporation is obligated by Section 317 to indemnify such person
against expenses actually and reasonably incurred in connection with the
proceeding.

Pursuant to the terms under which the ordinary shares were issued to the Selling
Securityholders, the Company has agreed to indemnify the Selling Securityholders
against such liabilities as they may incur as a result of any untrue statement
of a

material fact in the Registration Statement, or any omission therein to state a
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading. Such indemnification
includes liabilities under the Securities Act, the Exchange Act, state
securities laws and the rules thereunder, but excludes liabilities for
statements or omissions that were based on information provided by the Selling
Securityholders, as to which the Selling Securityholders have agreed to
indemnify the Company.

Item 9. Exhibits.

The exhibits listed on the exhibit index to this filing are incorporated herein
by reference.

Item 10. Undertakings.

(a) The undersigned Registrant hereby undertakes:

(1) To file during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:

(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;

(iii) to include any material information with respect to the Plan
of Distribution not previously disclosed in the Registration Statement or
any other material change to such information in the Registration
Statement.

Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the Registration Statement.

(2) That, for the purpose of determining any liability under the 1933 Act,
each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

(4) To file a post-effective amendment to the Registration Statement to
include any financial statements required by Item 8.A of Form 20-F at the start
of any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the
Securities Act need not be furnished, provided that the Registrant includes in
the prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and other information necessary to
ensure that all other information in the prospectus is at least as current as
the date of those financial statements. Notwithstanding the foregoing, with
respect to Registration Statements on Form F-3, a post-effective amendment need
not be filed to include financial statements and information required by Section
10(a)(3) of the Securities Act or Item 8.A of Form 20-F if such financial
statements and information are contained in periodic reports filed with or

furnished to the Commission by the Registrant pursuant to Section 13 or Section
15(d) of the Exchange Act that are incorporated by reference in the Form F-3.

(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Mountain View, state of California, on May 15, 2002.

COMMTOUCH SOFTWARE LTD.

By: /s/ DEVYANI PATEL
-----------------------------
Devyani Patel
Vice President, Finance

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.

Name Title Date
------------------------- -------------------------------------- ------------

/s/ GIDEON MANTEL* Chief Executive Officer and Director May 15, 2002
------------------------- (Principal Executive Officer)
Gideon Mantel

/s/ DEVYANI PATEL* Vice President, Finance May 15, 2002
------------------------- (Principal Financial and
Devyani Patel Accounting Officer)

/s/ CAROLYN CHIN* Director, Chairman of the Board May 15, 2002
-------------------------
Carolyn Chin

/s/ AMIR LEV* Director May 15, 2002
-------------------------
Amir Lev

/s/ OFER SEGEV* Director May 15, 2002
-------------------------
Ofer Segev

/s/ NAHUM SHARFMAN* Director May 15, 2002
-------------------------
Nahum Sharfman

*/s/ DEVYANI PATEL *Individually and as Attorney-in-fact May 15, 2002
------------------------- and Authorized U.S. Representative
Devyani Patel

Exhibit Index

Exhibit
Number Description of Document
------- --------------------------------------------------------------------

2.0 Ordinary Shares and Warrants Purchase Agreement dated as of February
27, 2002 by and between Commtouch Software Ltd. and the Investors
Listed on Exhibit A Thereto (incorporated by reference to Exhibit
2.8 to Annual Report of the Registrant on Form 20-F for the fiscal
year ended December 31, 2001 [File No. 000-26495]).

5.1 Opinion of Naschitz, Brandes & Co., Israeli counsel to the
Registrant, as to certain legal matters with respect to the legality
of the shares.

23.1 Consent of Kost, Forer & Gabbay, a member of Ernst & Young
International, independent auditors.

23.2 Consent of Naschitz, Brandes & Co. (contained in Exhibit 5.1)

23.3 Consent of McCutchen, Doyle, Brown & Enersen, LLP.

24.1 Power of Attorney of directors and certain officers of the
Registrant.