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                                                                     Rule 424b.3
                                                               File # 333-109837

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                                   PROSPECTUS

                             Commtouch Software Ltd.

                           13,947,992 Ordinary Shares
--------------------------------------------------------------------------------

      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 13,947,992 of our ordinary  shares,  5,700,955
of which  underlie  warrants.  The warrants  themselves are not being offered by
this  prospectus.  Some of 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. Also, some of the
Selling  Securityholders  acquired the  ordinary  shares from the Company in two
private  placements  in July  2003  after  approval  by the  Company's  board of
directors on July 15, 2003 and July 28, 2003. The ordinary shares offered hereby
have been  registered  pursuant to  registration  rights  granted to the Selling
Securityholders  by the Company.  These  securities  may be offered from time to
time by the Selling Securityholders  through public or private transactions,  on
or off the Nasdaq SmallCap 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.

      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  SmallCap  Market
under the symbol  "CTCH." On November 19, 2003 the last reported  sales price of
an ordinary share on the Nasdaq SmallCap Market was $1.21 per share.

--------------------------------------------------------------------------------
     This investment involves risk. See "Risk Factors" beginning on page 7.
--------------------------------------------------------------------------------

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 November 20, 2003



                                TABLE OF CONTENTS

                                                                          Page
                                                                         ------

Special Note Regarding Forward-Looking Information.....................     1
Summary ...............................................................     2
Operating and Financial Review and Prospects ..........................     3
Risk Factors ..........................................................     7
Capitalization and Indebtedness .......................................    16
The Offer and Listing..................................................    17
Reasons for the Offer and Use of Proceeds .............................    18
Selling Securityholders ...............................................    18
Shares Eligible for Future Sale .......................................    22
Offer Statistics and Expected Timetable and Plan of Distribution.......    23
Legal Matters .........................................................    25
Experts ...............................................................    25
Where You Can Find More Information ...................................    25
Information Incorporated by Reference .................................    26
Enforceability of Civil Liabilities ...................................    26







               SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

This document contains forward-looking  statements,  including projections about
our  business,  within  the  meaning of Section  27A of the  Securities  Act and
Section 21E of the Securities  Exchange Act of 1934. For example,  statements in
the future  tense,  and  statements  including  words such as "expect,"  "plan,"
"intend," "seek," "estimate," anticipate," and "believe" and similar expressions
are  forward-looking  statements.  These  statements  are  based on  information
available to us at the time of the  preparation of this  document;  we assume no
obligation  to update  any of them,  to the extent  that we are not so  required
under  applicable  law. The  statements in this  document are not  guarantees of
future  performance and actual results could differ  materially from our current
expectations as a result of numerous factors,  including business conditions and
growth or  deterioration  in our market,  commerce and the general  economy both
domestic   as  well  as   international;   fewer   than   expected   new-partner
relationships;  competitive  factors including pricing pressures;  technological
developments,  and products  offered by  competitors;  availability of qualified
staff for expansion;  and  technological  difficulties and resource  constraints
encountered  in developing new products as well as those risks  described  below
and in the Company's  Annual Reports on Form 20-F and reports on Form 6-K, which
are available through www.sec.gov.


                                       1


                                     SUMMARY

We are a provider of anti-spam  solutions to enterprise  customers.  The Company
offers its anti-spam  solutions to small, medium and large enterprises through a
variety  of  distribution  channels,   namely  various  reseller  channels.  The
solutions are also available for integration with security,  content  filtering,
anti-virus  and  other  filtering  solutions  through  alliances  and  strategic
partnerships. A combination of proprietary and patent-pending technologies makes
it possible for  Commtouch to detect,  alert and block most spam attacks as they
are distributed over the Internet.

Our  anti-spam  solution  consists of both a software  element (the  "Enterprise
Gateway") and a service  component  (the "Service  Center").  At the  Enterprise
Gateway,  messages  are  filtered at the  customer  organization's  entry point,
before being distributed to recipients, with added user-level controls and a top
level of secure spam detection  services from the Service  Center,  all allowing
for real-time reaction to worldwide spam attacks.  At the heart of the solution,
however,  is the Service Center,  which detects new spam attacks as soon as they
are launched and  distributed  over the Internet.  The Service  Center  provides
real-time  spam  detection  services  to  enterprise  customers  by  maintaining
constant  communication  with Enterprise  Gateways that are locally installed at
customer premises in different locations worldwide.  The Service Center collects
information  from multiple  sources  about new spam attacks,  analyzes the input
using  Commtouch  patent-pending   technology,   identifies  and  detects  spam,
classifies the data, matches its stored information  against outstanding queries
for spam detection from Enterprise Gateways and replies in real-time back to the
Enterprise  Gateways  with a  prioritized  and  accurate  resolution.  The whole
process  takes no more  than  300ms.  Enterprise  privacy  is kept at a  maximum
because  the  content of  incoming  email  messages  is not seen by the  Service
Center.

In particular,  the Commtouch anti-spam solution operates to help eliminate spam
as follows:

      Inbound  email enters the  Enterprise  Gateway,  a software  add-on to the
      enterprise SMTP server.

      The Enterprise  Gateway  matches key  characteristics  of the message with
      predefined spam policies created by IT managers or end-users.

      If the solution does not match the message to a known source,  either spam
      or non-spam,  it compares  characteristics of the incoming message against
      the Enterprise Gateway database of recently identified spam.

      If the message  remains  suspicious,  but cannot be confirmed as spam, the
      Enterprise  Gateway  queries the Service  Center for remote spam detection
      and classification services.

      The outgoing query  consists of encrypted  digital  signatures  taken from
      e-mail   header   information   to   ensure   enterprise    security   and
      confidentiality.

      The Service Center weighs the values of the outstanding  query against its
      vast  database of  real-time  information  about known spam  messages  and
      sources of spam, and replies to the  Enterprise  Gateway with a unique and
      up-to-date classification.

      The Enterprise  Gateway applies a locally predefined action to the message
      and may store the  information  internally  to match  against new incoming
      messages bearing similar characteristics.

We also offer a Software  Development Kit ("SDK").  The SDK enables  third-party
vendors to integrate  the Commtouch  anti-spam  solution  advantages  into their
existing  offerings,  providing  them  with full  spam  identification  and spam
classification  services from the Service  Center.  These  vendors  benefit from
Commtouch  expertise in blocking spam and other unwanted  email traffic  without
the  need to  develop  and  dedicate  a  service  department  in-house.  The SDK
communicates fully with the remote Service Center,  receiving results to queries
about  suspicious  messages and acting according to set policies on the customer
side.  Each such vendor has the  flexibility  to determine how best to integrate
the SDK  results  into  their  solution.  For  example,  if the  Service  Center
classifies a specific  message as spam, the vendor's  application may respond by
either   quarantining  the  message,   rejecting  it  completely  or  sending  a
bounce-back  message to its sender or any other option  provided by the vendor's
specific application.

The SDK consists of a set of APIs,  which  receive  characteristics  of incoming
messages as input from the  vendor's  application,  returning  the status of the
message  as  output  from the  Service  Center.  The  vendor  has the  option of
installing an API, which returns a deterministic  result classifying messages as
either spam or non-spam,  or using an API that classifies


                                       2


messages based on the level of suspicion  that the message is spam.  Each vendor
can  implement  its solution  differently,  making the unique  advantages of SDK
flexible to match particular needs.

Products that may benefit from integration of the SDK solution include:

      o    Anti-virus applications

      o    Content filtering solutions

      o    Firewall systems

      o    Security servers

      o    Other network appliances


Office Location

Our  principal  executive  offices  are  located  at 1A  Hazoran  Street,  Poleg
Industrial  Park,  Netanya  42504,   Israel,   where  our  telephone  number  is
011-972-9-863-6888,  and our wholly owned subsidiary, Commtouch Inc., is located
at 1300 Crittenden  Lane, Suite 103,  Mountain View,  California  94043,  with a
telephone number of (650) 864-2000. Our website address is www.commtouch.com.


Operating and Financial Review and Prospects

The following  discussion  should be read in conjunction  with the  Consolidated
Financial  Statements and the Notes thereto  included  elsewhere in this report.
This  discussion   contains   forward-looking   statements  based  upon  current
expectations  that involve risks and  uncertainties.  Any  statements  contained
herein  that  are  not  statements  of  historical  fact  may  be  deemed  to be
forward-looking  statements.  For example,  the words "expects,"  "anticipates,"
"believes,"  "intends," "plans," "seeks" and "estimates" and similar expressions
are intended to identify forward-looking statements.  Commtouch's actual results
and the timing of certain events may differ  significantly  from those projected
in the  forward-looking  statements.  Factors that might cause future results to
differ  materially  from  those  projected  in  the  forward-looking  statements
include, but are not limited to, those set forth elsewhere in this report.

Overview

During 2002,  our main business was providing  outsourced  integrated  Web-based
email and  messaging  solutions to a few  businesses  that remained as customers
following the transfer of our consumer  outsource  web-based  email business and
sale of our Hosted  Exchange email  business  during late 2001 and early 2002 in
transactions with MailCentro Inc. and Telecomputing,  Inc. respectively.  During
early  2002,  concurrent  with the  divestiture  of the  Company's  above-stated
businesses,  the Company  began  marketing to service  providers  its  messaging
software platform ("CMP"), which had been in development by the Company prior to
that time. Following a concerted effort to penetrate the email server market and
a determination that the continuing unfavorable economic conditions would hamper
potential sales of CMP, and given the Company's  inherent knowledge of anti-spam
solutions  based on its many years as an ASP in the outsourced  email market and
the growing  worldwide  attention that has been directed to the problem of spam,
the Company transitioned its focus to the anti-spam market in mid-2002. While no
uniform  definition of spam exists,  the Company generally defines "spam" as the
sending of unsolicited bulk email for commercial and non-commercial purposes.

In February 2002, the Company sold off its migration service  business,  Wingra,
to Wingra's  senior  management.  The operations of Wingra have been  eliminated
from the operations of the entity as a result of the disposal  transaction.  The
Company has no intent to continue its activity in the migration service.

The results of operations including revenue, operating expenses and other income
and expense of Wingra for the six months  ended 2002 have been  reclassified  in
the accompanying statements of operations as discontinued operations.

Critical Accounting Policies and Estimates

Operating  and  Financial  Review and  Prospects  are based  upon the  Company's
consolidated  financial statements,  which have been prepared in accordance with
accounting  principles  generally accepted in the United States. The preparation
of  these  financial  statements  requires  management  to  make  estimates  and
judgments that affect the reported amounts of assets, liabilities,  revenues and
expenses and related disclosure of contingent assets and liabilities. Management
believes  the  critical

                                       3



accounting  policies and areas that require the most  significant  judgments and
estimates to be used in the preparation of the consolidated financial statements
are revenue recognition and commitments and contingencies.

Revenue recognition

Revenue is recognized when the earnings process is complete,  as evidenced by an
agreement  between the customer and the company,  when  delivery has occurred or
services  have been  rendered,  when the fee is fixed or  determinable  and when
collection is probable. The recognition of revenue in conformity with accounting
principles  generally accepted in the United States requires the company to make
estimates and assumptions that affect the reported amounts of revenue. Estimates
related to the  recognition  of revenue  include the  accumulated  provision for
revenues  subject  to  refund  and  other.  As  additional  information  becomes
available,  or actual  amounts are  determinable,  the  recorded  estimates  are
revised. Consequently, current operating results can be affected by revisions to
prior accounting estimates.

Allowance for Doubtful Accounts and promissory notes

We maintain  allowances  for  doubtful  accounts for  estimated  losses from our
customers'  inability to make payments they owe us and for estimated losses from
our former employees inability to pay amounts guaranteed by promissory notes. In
order to estimate the appropriate level of this allowance, we analyze historical
bad debts, customer concentrations, current customer credit-worthiness,  current
economic trends and changes in our customer payment  patterns.  If the financial
condition of our  customers/employees  were to  deteriorate  and to impair their
ability to make  payments  to us,  additional  allowances  might be  required in
future periods.

Impairment of long-lived assets

We assess the fair value and  recoverability  of our long-lived  assets whenever
events and  circumstances  indicate  the  carrying  value of an asset may not be
recoverable from estimated future cash flows expected to result from its use and
eventual  disposition.  In doing so, we make assumptions and estimates regarding
future cash flows and other factors to make our determination. The fair value of
our  long-lived  assets is  dependent  upon the  forecasted  performance  of our
business, changes in our industry and the overall economic environment.  When we
determine that the carrying value of our long-lived  assets and goodwill may not
be  recoverable,  we measure any impairment  based upon a forecasted  discounted
cash  flow  method.  If  these  forecasts  are not met,  we may  have to  record
additional impairment charges not previously recognized.

During  2002,  we  performed an  assessment  of the our property and  equipment,
pursuant  to SFAS No.  No.144  "Accounting  for the  Impairment  or  Disposal of
Long-Lived Assets" ("SFAS No.144"). Pursuant to SFAS No. No.144, whenever events
or changes in  circumstances  indicate that the carrying  amount of an asset may
not be recoverable.  Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to the future  undiscounted cash
flows  expected to be generated by the assets.  If such assets are considered to
be impaired,  the impairment to be recognized is measured by the amount by which
the carrying  amount of the assets exceeds the fair value of the assets.  Assets
to be disposed of by sale are  reported at the lower of the  carrying  amount or
fair value less costs to sell.  For the year ended December 31, 2002 the Company
recognized  impairment  losses  totaling $ 0.8 million,  which were  recorded as
operating expenses.

Contingencies

Commtouch  periodically  records the  estimated  impacts of various  conditions,
situations  or  circumstances  involving  uncertain  outcomes.  These events are
called "contingencies", and Commtouch's accounting for such events is prescribed
by  Statement  of  Financial   Accounting   Standards  No.  5,  "Accounting  for
Contingencies" ("SFAS No. 5")

SFAS No. 5 defines a contingency as "an existing condition, situation, or set of
circumstances involving uncertainty as to possible gain or loss to an enterprise
that will ultimately be resolved when one or more future events occur or fail to
occur."

SFAS  No.  5 does  not  permit  the  accrual  of gain  contingencies  under  any
circumstances.  For  loss  contingencies,  the  loss  must  be  accrued  if  (1)
information  is available  that  indicates it is probable that the loss has been
incurred,  given the likelihood of the uncertain future events; and (2) that the
amount of the loss can be reasonably estimated.

The  accrual of a  contingency  involves  considerable  judgment  on the part of
management.  Commtouch uses its internal expertise, and outside experts (such as
lawyers,  tax  specialists and  engineers),  as necessary,  to help estimate the
probability that a loss has been incurred and the amount (or range) of the loss.
The Company has recorded contingencies in situations where management determined
it was  probable a loss had been  incurred  and the amount  could be  reasonably
estimated.


                                       4


Revenue Sources

Service Fees.  During 2000 - 2002, most of our email service  revenues  resulted
from  contracts  that  required  our  customers to pay us a monthly per emailbox
price  subject to a minimum  commitment  fee and fees for direct  marketing  and
communications  services. In addition, the Company recognized revenue from sales
of software  licenses to end users.  During that time, we recognized no revenues
from our new anti-spam offering.


Results of Operations


                                                                 Six Months      Six Months
                                                                   Ended           Ended
                                                                June 30, 2003   June 30, 2002
                                                                -------------   -------------
                                                                             
Revenues:
    Email services ...........................................     $   176         $ 2,076
    Software licenses ........................................          --             200
                                                                   -------         -------
    Total revenues ...........................................     $   176         $ 2,276
                                                                   -------         -------
Cost of revenues:
    Email services ...........................................         317           1,339
                                                                   -------         -------
Gross profit (loss) ..........................................        (141)            937
                                                                   -------         -------
Operating expenses:
    Research and development, net ............................         708           1,103
    Sales and marketing ......................................         528             765
    General and administrative ...............................         774           1,187
    Amortization of stock-based employee deferred compensation         126             276
                                                                   -------         -------
    Total operating expenses .................................       2,136           3,331
                                                                   -------         -------
Operating loss ...............................................      (2,277)         (2,394)
    Interest and other income (expense), net .................        (141)             24
    Equity in Income of Imetrix ..............................         237              18
    Minority interest ........................................          --              74
                                                                   -------         -------
    Loss from continuing operations ..........................      (2,181)         (2,278)
                                                                   -------         -------
    Gain on disposal of Wingra ...............................          --           1,014
    Discontinued operations - Wingra .........................          --            (335)
                                                                   -------         -------
Gain from sale of discontinued operations ....................          --             679
                                                                   -------         -------
Net loss .....................................................     $(2,181)        $(1,599)
                                                                   =======         =======


Comparison of the Six Months Ended June 30, 2003 and 2002 --
(U.S. dollars in thousands, except share and per share data)

Revenues.  Email service  revenues  decreased 92% from $2,076 for the six-months
ended June 30, 2002 to $176 for the same period in 2003. We  recognized  revenue
of $200 from the sale of  licenses  for the  six-months  ended June 30, 2002 and
none for the same period in 2003. For the six-months  ended June 30, 2003,  100%
of the revenues were derived from four  customers (39% from customer A, 38% from
customer B, 12% from  customer C and 11% from  customer  D). For the  six-months
ended June 30, 2002,  51% of the revenues were derived from two  customers  (34%
from customer A and 17% from customer B).

Cost of Revenues.  Cost of revenues decreased 76% from $1,339 for the six-months
ended June 30, 2002 to $317 for the same period in 2003.We  have  decreased  our
hosting  infrastructure  costs due to the agreement with  MailCentro and sale of
the Hosted Exchange business.

Research and Development,  Net. Research and development  expenses decreased 36%
from $1,103 for the  six-months  ended June 30, 2002 to $708 for the same period
in 2003 due to the  decrease  in  personnel  and other  related  costs.  For the
six-months  ended June 30,  2002 and 2003,  we received  royalty-bearing  grants
totaling $145 and zero,  respectively,  from the Israeli government,  which were
recorded  as  a  reduction  of  research  and  development  costs.  The  Israeli
government requires beneficiaries of such grants to pay royalties to the Israeli
government based on the revenues derived from the sale of products, technologies
and services developed with such grants.


                                       5


Sales and Marketing.  Sales and marketing  expenses  decreased 31% from $765 for
the  six-months  ended June 30, 2002 to $528 for the same period in 2003, due to
the agreement with MailCentro and sale of the Hosted Exchange business,  as well
as the change in business strategy.

General and  Administrative.  General and administrative  expenses decreased 35%
from $1,187 for the  six-months  ended June 30, 2002 to $774 for the same period
in 2003, due primarily to curtailment of costs.

Amortization  of Stock-Based  Employee  Deferred  Compensation.  Our stock-based
employee  deferred  compensation  expenses  decreased  54%  from  $276  for  the
six-months ended June 30, 2002 to $126 for the same period in 2003. The deferred
compensation is being amortized using the sum-of-digits  method over the vesting
schedule,  generally  four years.  Amortization  of these  amounts will conclude
during the third quarter of 2003. Deferred  compensation  expenses also included
$117 for the six-months ended June 30, 2002 and 2003, respectively,  relating to
the repricing of stock options  during 2001.  The total  amortization  charge of
$1.0 million related to the repricing will be amortized using the  straight-line
method over a three year vesting schedule.

Interest and Other Income,  Net. Our interest and other income,  net,  decreased
from a net income of $24 for the six-months ended 2002 to a net loss of $141 for
the six-months  ended June 30, 2003, due primarily to decreased  interest income
earned from cash equivalents, as the funds depleted in 2002.

Minority Interest.  At June 30, 2002 and 2003,  respectively,  the Company owned
32% of the equity and voting rights of Commtouch, K.K. (Japan).


Liquidity and Capital Resources

We have financed our operations from the issuance of equity securities and, to a
lesser extent from private loans, bank loans and research and development grants
from the Israeli government.

As of June 30, 2003, we had approximately  $1,034 of cash to fund operations for
at least the next  twelve  months.  For the  six-months  ended June 30, 2003 and
2002,  we utilized  $1,641 and $2,032,  respectively  of cash to fund  operating
losses.  Net cash provided by financing  activities were  approximately  $1,287,
mainly due to proceeds from issuance of convertible loan.


                                       6


                                  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 anti-spam solutions, we will
fail to generate revenues.

Our success will depend on the acceptance and use of our anti-spam  solutions by
enterprise  customers.  We  cannot  estimate  the  size  or  growth  rate of the
potential  market for our  anti-spam  offerings.  If the  market  for  anti-spam
solutions 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 anti-spam  solution 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 anti-spam solutions,  if that market does not grow, our business will likely
fail.

Dependence upon resellers and product concentration

The Company  expects that it will continue to be dependent  upon resellers for a
significant portion of its revenues.  If anticipated orders from these resellers
fail to materialize,  the Company's  business,  operating  results and financial
condition will be materially  adversely affected.  The Company expects to derive
the vast  majority of its revenues in the  foreseeable  future from sales of its
anti-spam solutions.

Our future revenues are difficult to predict 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 anti-spam  solutions and because
of the  emerging  nature of the  markets  in which we  compete,  our  revenue is
difficult  to  predict.  Our current  and future  expense  levels 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    Our  ability  to  successfully   develop  and  market  our  anti-spam
           solutions  to  new  markets;

      o    The market acceptance of our new anti-spam solutions;

      o    The size,  timing and  fulfillment  of orders  for our new  anti-spam
           solutions;

      o    Our ability to expand our workforce with qualified personnel,  as may
           be needed;

      o    Unanticipated  bugs or other  problems  arising in providing  our new
           anti-spam solutions to enterprise customers;

      o    The success of our resellers  sales  efforts to potential  enterprise
           customers;

      o    The  solvency  of  our   resellers  and  their  ability  to  allocate
           sufficient  resources  towards  the  marketing  of our new  anti-spam
           solutions to their potential enterprise customers;

      o    The rate of adoption of anti-spam  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,  modified and/or
           upgraded solutions, as may be needed;

      o    The  substantial  decrease  in  information  technology  spending  in
           general;

      o    Pricing of our solutions;

      o    Our ability to timely collect fees owed by resellers/customers; and

      o    Effectiveness  of  our  customer  support,  whether  provided  by our
           resellers or directly by Commtouch.


                                       7


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 not had  anti-spam  solution  sales during
2002, 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  anti-spam  solutions  after having  ceased our efforts to sell our software
messaging  solution  during  2002  and,  prior  to that  time,  having  provided
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 mid-2002, we began focusing exclusively on completing development
of and  selling our new  anti-spam  solutions.  This change  required us to once
again adjust our business  processes  and to readjust the workforce at Commtouch
(predominantly,  the sales force).  Therefore, we have no operating history as a
provider of our new anti-spam  solutions  upon which you may be able to evaluate
our business and prospects.  It is too early to judge whether this business will
succeed.

We have many  established  competitors who are offering a multitude of solutions
to the spam problem

The market for anti-spam solutions 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  anti-spam  solutions,  there are a large  number of providers
offering "content filtering" solutions (solutions focusing solely on the content
of potential spam email). Other providers that offer forms of software (gateway)
and/or service based solutions and which may be viewed as direct  competitors to
Commtouch  include  Brightmail(R)  and Postini(R).  There is a great  likelihood
that,  as the market for  anti-spam  solutions  further  develops  and given the
difficult  technological  hurdles in attempting to create an effective solution,
established  Internet security players will enter the market, who may be able to
leverage  their  market  position  and  resources  to  capture a portion  of the
anti-spam market.

As this  market  continues  to  develop,  a number  of  companies  with  greater
resources  than ours could attempt to increase  their presence in this market by
acquiring  or forming  strategic  alliances  with our  competitors  or  business
partners.   Competitors  could  introduce   products  with  superior   features,
scalability and  functionality  at lower prices than our products and could also
bundle  existing  or new  products  with other more  established  products  that
discourage  users from purchasing our products.  In addition,  because there are
relatively low barriers to entry for the software market,  we expect  additional
competition from other established and emerging companies. Increased competition
is likely  to result in price  reductions,  reduced  gross  margins  and loss of
market share, any of which could harm our business.

Also,  there  are  companies  that  develop  and  maintain  in-house   anti-spam
solutions,  such as  Microsoft(R)and  Yahoo(R).  These and other companies could
potentially leverage their existing  capabilities and relationships to enter the
anti-spam industry.(R)Brightmail, Postini, Microsoft and Yahoo are trademarks of
Brightmail,   Inc.,  Postini,   Inc.,  Microsoft  Corporation  and  Yahoo!  Inc.
respectively.

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,  technical,
sales,  marketing and other resources than we do and may enter into strategic or
commercial relationships on more favorable terms. Some of these competitors have
research  and  development  capabilities  that may allow them to develop  new or
improved  products that may compete with product lines we market and distribute.
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 the underlying  technological base of our anti-spam  solutions
and the current  landscape of the anti-spam  market require highly trained sales
and marketing personnel to educate prospective resellers and customers regarding
the use and benefits of our  solutions.  We have limited  experience  in selling
anti-spam solutions to enterprise  customers.  It will take time for our current
and  future  employees  and  resellers  to learn  how to market  our  solutions.
Additionally,  we are unable to predict the possibility of success selling newly
introduced  solutions for which we have no marketing  experience 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 bigger and more experienced  sales
and marketing organizations of our competitors.


                                       8


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

We incurred net losses of approximately  $54.2 million in 2000, $61.0 million in
2001, $4.9 million in 2002 and a net loss of $2.18 million for the six months of
2003. As of December 31, 2002 and June 30, 2003, we had an  accumulated  deficit
of approximately $151.7 million and approximately $153.8, respectively.  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 remains very thinly capitalized.  As such, we might become dependent
upon  raising  additional  funds to finance our  business.  Our cash  balance at
December  31,  2002  and  June  30,  2003 was  approximately  $1.4  million  and
approximately  $1.0 million,  respectively.  In connection  with the two private
placements that occurred in July 2003, we raised an additional  $3,040,000.  See
"Risk  Factors--Investment  Risks--We may need additional  capital" below. 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.

In the past we have received funds for the  development of our business from the
State of Israel ("OCS") through the Office of the Chief  Scientist,  or the OCS.
However, under our Convertible Loan Agreement, we have agreed to limit our total
funding  received or  receivable  from the OCS to a maximum in the  aggregate of
$1,500,000  during the term of the loan.  Grants  received  from the OCS through
2002  that  the  Company   potentially   will  be  obligated  to  repay  totaled
approximately $800,000.

Risk of Litigation

Legal  proceedings  can be expensive,  lengthy and disruptive to normal business
operations,  regardless of their merit.  Moreover,  the results of complex legal
proceedings are difficult to predict and an unfavorable  resolution of a lawsuit
or proceeding  could have a material  adverse effect on the Company's  business,
results of operations or financial condition.

Indemnification of Directors and Officers

The Company has  agreements  with its  directors,  subject to Israeli law,  that
provide for the Company to indemnify  these  directors  for any of the following
obligations  or  expenses  incurred  as a result of an act or  omission  of such
persons in their capacity as directors: (a) any monetary obligation imposed upon
them for the benefit of a third party by a judgment,  including a settlement  or
an arbitration  decision,  confirmed by the court, and (b) reasonable litigation
expenses,  including legal fees, actually incurred by such a director or imposed
upon the director by a court order,  in a proceeding  brought against him/her by
or on behalf of the  Company  or by  others,  or in  connection  with a criminal
proceeding  in which  he/she was  acquitted,  or in  connection  with a criminal
action which does not require criminal intent in which he/she was convicted.

Risk due to economic conditions

Should  economic  conditions  fail to  improve,  our  ability  to  sell  our new
anti-spam solutions could be negatively  impacted.  Furthermore,  even if we are
successful  in  selling  our  solutions,  our  ability  to  collect  outstanding
receivables may be significantly  impacted by liquidity issues of our resellers'
customers  and/or our  resellers  themselves,  which may  negatively  affect our
ability  to  recognize  future  revenue  based on  sales.  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 anti-spam solutions,  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.


                                       9


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

At December  31,  2002,  we had sales  offices in Israel and the United  States.
Depending  on the  success of our  marketing  efforts in North  America,  we may
pursue the  marketing of our  anti-spam  solutions in  international  markets by
utilizing appropriate  distributorship channels.  However, 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
           anti-spam 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   prospective
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  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.  In this regard,
the U.S.  recently led a coalition of forces in attacks on Afghanistan and Iraq.
The  worldwide  ramifications  of such  attacks are unknown at this time.  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 spam and  anti-spam  industry is  characterized  by difficult  technological
challenges,  sophisticated "spammers" and constantly evolving spam practices and
targets that could render our  anti-spam  solutions and  proprietary  technology
ineffective. Our success depends, in part, on our ability to continually enhance
our existing  anti-spam  solutions and to develop new  solutions,  functions and
technology that address the potential  needs of 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,  and
may not be able to do so.

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

Our anti-spam solutions are based in part 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 anti-spam solutions offering, it is
possible  that,  despite


                                       10


testing by us, defects may exist in the software we license. These defects could
cause  interruptions in our anti-spam  solutions for 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  anti-spam  solutions  for  enterprises  and,  possibly,  other  target
markets.

Based  on the cash  balance  at  September  30,  2003,  current  projections  of
revenues, related expenses, the ability to further curtail certain discretionary
expenses and completion of the two equity financings  announced on July 16, 2003
and August 4, 2003,  the  Company  believes it has  sufficient  cash to continue
operations for at least the next twelve months.

We were previously subject to a class action lawsuit.

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 was granted. The plaintiffs then filed
a second amended and  consolidated  complaint,  and our second motion to dismiss
was only partially accepted, with the end result being that the plaintiffs filed
a third  amended  and  consolidated  complaint.  We  (including  the  individual
defendants) filed an answer to that complaint,  and the case then moved into the
discovery stage, with the case being set for trial in January 2004. In May 2003,
a settlement  agreement was signed between the plaintiffs and defendants and the
court  thereafter  issued a  preliminary  order  approving the  settlement.  The
settlement  calls for the  payment of $15 million to the  plaintiffs,  with this
amount to be fully funded by the Company's  Directors and Officers  policy.  The
payment to  plaintiffs  under this  settlement  should not cause the Company any
financial  hardship.  On  September  24, 2003,  the court  entered a final order
approving the settlement and, as of such date, no class member had chosen to opt
out of the  settlement.  The  settlement  does not  contain  any  admissions  or
findings  of  wrongdoing  on the  part of the  defendants,  and we  continue  to
maintain that the Company and individual defendants acted properly at all times.

If we cannot  satisfy  Nasdaq's  maintenance  requirements,  it may  delist  our
ordinary  shares from its Smallcap  Market and we may not have an active  public
market for our ordinary  shares.  The absence of an active  trading market would
likely make our ordinary shares an illiquid investment.

Our ordinary shares are quoted on the Nasdaq SmallCap Market.  To continue to be
listed, we are required to maintain shareholders' equity of at least $2,500,000,
or market  value of our  outstanding  shares  (excluding  shares held by company
insiders and principal  shareholders) of at least  $35,000,000,  or we must have
realized at least $500,000 in net income from continuing  operations in our last
fiscal year or in two of our last three fiscal years. Until recently, we did not
comply  with any of these  listing  requirements.  However,  as a result  of the
proceeds we received from our recent private placement  offerings,  we currently
are in compliance with the $2,500,000 shareholders' equity requirement. However,
if we continue to incur operating losses our shareholders'  equity will decrease
to reflect those  losses.  Accordingly,  there can be no assurance  that we will
continue to comply with this requirement.

If we will not be in  compliance  with any of these tests in the future,  Nasdaq
may delist our ordinary  shares.  If this  occurs,  trading in our 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.

Also,  Nasdaq may delist our ordinary 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.


                                       11


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
stock 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  beneficially own over five percent of
our ordinary shares, beneficially own, in the aggregate, approximately 40.09% of
our outstanding  ordinary shares as of August 12, 2003 plus warrants and options
exercisable  within 60 days thereof.  If they vote together  (especially if they
were to convert all beneficial holdings into shares entitled to voting rights in
the Company),  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.  The
above percentage of beneficial  ownership includes warrants and options totaling
7.36% of the  outstanding  ordinary shares which are underwater as of August 12,
2003.

In addition  to certain of the  Selling  Securityholders  in this  offering  who
beneficially  hold over 5% of our  outstanding  ordinary  shares  (See  "Selling
Securityholders"  below),  the following  individuals also  beneficially hold at
least 5% of our outstanding ordinary shares:

      o    Gideon Mantel,  CEO and a director in the Company,  beneficially owns
           approximately  6.7% of our outstanding  ordinary shares (inclusive of
           warrants underwater as of August 12, 2003 constituting  approximately
           1% of the outstanding ordinary shares); and

      o    Nahum  Sharfman,  a  director  in  the  Company,   beneficially  owns
           approximately  5.0% of our outstanding  ordinary shares (inclusive of
           warrants and options  underwater  as of August 12, 2003  constituting
           0.8% of the outstanding ordinary shares).

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.  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.

Furthermore, InfoSpace holds 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.


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  are  eligible  for  resale in the future  (i.e.  those  shares
covered by warrants  issued in the private  round of financing of February  2002
those  shares  that  may be  issued  if the  lenders  in  the  convertible  loan
transaction  decide to  exercise  warrants  and/or  convert the  Company's  loan
obligations  to equity  and those  shares  that will be  eligible  for resale at
various  dates in the future  pursuant  to this  Registration  Statement.  These
shares will dilute existing shareholders.


                                       12


Risk of  failure  to honor  registration  rights  for the 2002 and 2003  private
placements

According to the agreements 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 agreements.

Risk of occurrence of event of default under Convertible Loan Agreement

The Company is required to abide by the terms and provisions of the  Convertible
Loan Agreement.  Upon failure to do so, for example, failure to pay principal or
interest, failure to obtain the registration with the SEC of the shares that may
be issued to lenders under the agreement,  failure to maintain consolidated cash
reserves of at least $500,000,  upon the lenders' demand, we would be in default
of the  agreement.  The lenders  were granted  security  interests in all of the
Company's assets. If an event of default were not cured by the Company, the loan
would accelerate and all amounts due under the loan would immediately become due
and payable. If the Company were unable to repay the loan amounts,  the lenders,
among  other  things,  would  have the  right  to  foreclose  on their  security
interests  in the  Company's  assets by seizing and  selling  all the  Company's
assets.

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 patent pending technology,  copyrights, service marks, trademarks,
trade secrets and similar intellectual  property as critical to our success, and
rely on patent,  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
patent pending  technology,  trade secrets,  copyrights,  trademarks and similar
proprietary  rights.  We have recently  filed a provisional  patent  application
covering  certain aspects of our anti-spam  technology,  and we may convert this
application  into  a  formal  patent  application  or  seek  to  patent  certain
additional  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  anti-spam  solutions.  In  addition,  because  patent
applications in the United States are not publicly disclosed until the patent is
issued,  applications  previously  may  have  been  filed  which  relate  to our
anti-spam solutions.

Other parties may assert  infringement claims against us. We may also be subject
to legal  proceedings and claims from time to time in the ordinary course of our
business,  including claims of alleged  infringement of the patents,  trademarks
and other  intellectual  property  rights of third  parties by ourselves and our
licensees. Such claims, even if not meritorious, could result in the expenditure
of significant financial and managerial resources.

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.

We also continue to hold a perpetual  mail server  license which was utilized in
our hosted  service  offering  and is still  being  utilized  by us to service a
current customer, and may license other technology as the need arises. We cannot
be certain that, apart from the mail server license,  other third-party  content
licenses  will be available to us on  commercially  reasonable  terms or that we
will be able to successfully  integrate the technology into our products.  These
third-party  licenses  may  expose  us  to  increased  risks,   including  risks
associated with the  assimilation of new technology,  the diversion of resources
from the  development of our own  proprietary  technology,  and our inability to
generate   revenues  from  new  technology   sufficient  to  offset   associated
acquisition and maintenance costs. The inability to obtain any of these licenses
could result in delays in product development until equivalent technology can be
identified,   licensed  and   integrated.   Any  such  delays  could  cause  our
business/financial condition and operating results to suffer.

Governmental  regulation and legal  uncertainties could impair the growth of the
Internet,  decrease  the  distribution  of  unsolicited  bulk  (spam)  email and
decrease  demand  for our  anti-spam  solutions  or  increase  our cost of doing
business.

While laws  aimed at  curtailing  the  spread of spam have been  adopted by some
states,  enforcement  has not been  widespread and the lack of a body of federal
anti-spam law has  highlighted  an increase in the amount of spam  traffic.  The
growth and  development  of the spam market may prompt calls for more  stringent
Internet user protection laws that may limit the ability


                                       13


of companies promoting or delivering spam 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. All or some
of the above laws could  decrease  the demand for our  anti-spam  solutions  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 between Israel and the Arab countries in the region. Peace talks between
Israel and the Palestinian  Authority  began in the early 1990s,  but they broke
down in  mid-2000.  Attacks on Israel by  Palestinian  terrorists,  and military
responses by Israel,  have accelerated  considerably  since late 2000. We cannot
predict  whether or when a peace process will resume,  whether a full resolution
of these  problems  will be achieved,  the nature of any such  resolution or any
consequences  that  any of  these  factors  may  have on us.  Any  future  armed
conflicts or political  instability  in the region could  negatively  affect our
business or harm our results of operations.

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  historically have been generated
in U.S.  dollars and a portion of our expenses have been incurred in New Israeli
Shekels,  our results of operations  may be adversely  affected by inflation and
currency fluctuations.

We have  generated a  substantial  portion of our  revenues in U.S.  dollars and
incurred 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 have been  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.  In 2002 and
for a number of prior to 1999,  the rate of  devaluation  of the NIS against the
dollar exceeded the rate of inflation. We cannot be assured that this trend 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 (OCS), for the financing of a significant  portion
of our research and  development  expenditures  in Israel.  In 2001 and 2002, we
applied


                                       14


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 in 2002 we received $0.2 million.  While we have applied for an
additional  grant in 2003,  the OCS budget has been subject to reductions  which
may affect the availability of funds for this prospective grant and other 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. We account for
these contingent royalties by recording an accrual in our financial  statements.
Because we determined  that no revenue is expected from some of these  projects,
as of  December  31,  2001 we  decided to write down the  related  $0.4  million
accrual we recorded in past years. The OCS subsequently  confirmed the status of
these  projects  as being  non-royalty-bearing.  The OCS  would be  entitled  to
revisit  the  status of these  projects  in the  future if the  Company  were to
commence utilizing technology developed under these projects.

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.

Also,  under our Convertible  Loan Agreement,  we have agreed to limit our total
funding  received or  receivable  from the OCS to a maximum in the  aggregate of
$1,500,000  during the term of the loan.  Grants  received  from the OCS through
2002  that  the  Company   potentially   will  be  obligated  to  repay  totaled
approximately $800,000.

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 holdings of our shares by
foreign  shareholders.  The  benefits  available to an approved  enterprise  are
conditioned upon the fulfillment of specified  conditions,  including 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.  In
addition,  the law and  regulations  prescribing  the  benefits  provide  for an
expiration  date for the grant of new  benefits.  The  expiration  date has been
extended  several times in the past.  The  expiration  date  currently is end of
December  2003 and no new  benefits  will be granted  after that date unless the
expiration  date is extended.  We cannot  assure you that new  benefits  will be
available  after  December 2003 or that benefits will 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 report
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 several 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  Inc., our U.S.  subsidiary,  as our agent to receive
service of process in any action  against us arising from this  report.  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.


                                       15


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  and,  as noted  hereinabove,  tax reform in Israel can reduce
potential tax benefits, and limit our potential profitability.

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.


                         CAPITALIZATION AND INDEBTEDNESS

The following table sets forth the  capitalization and indebtedness of Commtouch
as of June 30, 2003,  actual and as adjusted for the two private  placements  in
July 2003:

                                                    (UNAUDITED)    (UNAUDITED)
                                                      Actual       As adjusted
                                                  (IN THOUSANDS)  (IN THOUSANDS)
                                                  ------------    ------------
Long-term liabilities .........................   $     706       $     706
Shareholders' equity:
     Ordinary shares, NIS 0.05 par value;
     55,000,000 shares authorized, with
     22,262,631 and 27,809,298 actual and
     as adjusted shares issued and outstanding,
     respectively .............................         290             353
Additional paid-in capital ....................     154,536         157,513
Deferred compensation .........................        (151)           (151)
Notes receivable from shareholders ............        (339)           (339)
Accumulated deficit ...........................    (153,852)       (153,852)
                                                  ---------       ---------
Total shareholders' equity ....................   $     484       $   3,524
                                                  ---------       ---------
Total capitalization and indebtedness .........   $   1,190       $   4,230
                                                  ---------       ---------


                                       16


                              THE OFFER AND LISTING


The Offering


                                                           
Ordinary shares offered ....................................  13,947,992 shares, NIS 0.05 par value per share

Price.......................................................  As determined be each Selling SecurityHolder

Ordinary shares outstanding after the offering..............  33,717,150 shares [based on ordinary shares outstanding prior to the
                                                              offering on August 12, 2003 of 27,809,298]

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

NASDAQ SmallCap 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 August 12, 2003, and:

      o    assumes the  issuance of  1,136,068  ordinary  shares  issuable  upon
           exercise  of options  granted to  executive  officers  and  directors
           within 60 days of August  12,  2003 at a  weighted  average  exercise
           price of $0.17 per share; and

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

and does not include:

      o    2,020,189  ordinary shares issuable to employees and consultants upon
           exercise of  outstanding  options  under our stock  option  plans and
           stock option  agreements as of August 12, 2003 at a weighted  average
           exercise price of $0.19; and

      o    1,065,983  ordinary  shares  available  for future  grant or issuance
           under our stock option plans as of August 12, 2003.

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:


                                       17


                                                  High              Low
                                             -----------      -------------
1999 (beginning July 13, 1999)               $    49.125      $     11.0625

2000:                                        $    66.50       $      7.44

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
 Second Quarter                              $     0.25       $      0.11
 Third Quarter                               $     0.15       $      0.08
 Fourth Quarter                              $     0.06       $      0.22

2003:
 First Quarter                               $     0.16       $      0.10
 Second Quarter                              $     0.69       $      0.12
Third Quarter                                $     0.96       $      0.55

Most Recent Six Months:

May 2003                                     $     0.69              0.33
June 2003                                          0.61              0.47
July 2003                                          0.96              0.55
August 2003                                        0.93              0.71

September 2003                                     0.89              0.72
October 2003                                       1.47              0.80


                    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 August 12,
2003,  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 August 12, 2003 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 27,809,298  ordinary shares outstanding as of August 12,
2003 and  33,717,150  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 August 12, 2003.


                                       18



                                                                        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
---------------------------              ----------    -----------     ----------   ----------   ------------
                                                                                         
Israel Seed IV, L.P.                      2,666,667         9.26        2,666,667            0            0
Queensgate Bank & Trust Company Ltd.
Harbour Place, 5th Floor
103 South Church Street
P.O. Box 30464 SMB
Grand Cayman, Cayman Island
Attn: Daniel Chinn

Argos Capital Management, Inc.              777,778         2.75          777,778            0            0
211 West 61st Street, 6th Floor
New York, NY 10023
Attn. Ephraim F. Gildor

OZF Ltd.                                  3,113,834        10.59        2,393,834      720,000          2.1
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

Clarenville Ltd.                          1,150,000         4.04          750,000      400,000         1.18
Nora Court 86, CY-3040
Athinon Street
Limassol, Cyprus
Attn: Shlomo Weintraub
Tel: +1 408 666 8201
Fax: +1 408 255 7420
Email: shlomowein@yahoo.com;
simon@capital-inv.com
Attn: Mr. Elikos Elia

Victor Haim Amara                           660,512         2.35          660,112          400            0
Marcus St. 8
Jerusalem, 92333 Israel

Apollo Nominees Inc.                        300,000         1.07          300,000            0            0
Suite 100
One Financial Place,
Lower Collymore Rock,
St.Michael, Barbados

Yosef Pinson                                300,000         1.07          300,000            0            0
4 Hausner St., #30
Tel Aviv, Israel 69363

Chen Bardichev 1/                            75,000         0.27           75,000            0            0
Ein Vered, 40696
Israel

Moshe Bardichev 1/                           75,000         0.27           75,000            0            0
Ein Vered, 40696
Israel


                                       19



                                                                        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
---------------------------              ----------    -----------     ----------   ----------   ------------
                                                                                         
Compugen Systems Ltd.                     1,225,000         4.24          225,000    1,000,000          2.9
25 Leek Crescent
Richmond Hill, ON Canada L4B4B3

Amnon Shoham                                225,000         0.81          225,000            0            0
25 Farley Pond Lane
Needham, MA 02492.

Isaac Applbaum                              150,000         0.54          150,000            0            0
837 Longridge Road
Oakland, CA 94610

AxcessNet Resources LLC.                  1,650,000         5.6            50,000    1,600,000          4.6
1050 Winter Street (Suite 2400),
Waltham MA 02451

Yuval Cohen                                  63,000         0.23           63,000            0            0
52 Etzion St.
Raanana 43563 Israel

Delta Capital Ltd.                          150,000         0.54          150,000            0            0
788-790 Finchley Road
London, NW117TJ

Delta Capital Investments Ltd.              400,000         1.42                0      400,000         1.18
37-41 Bedford Row
London, WC1R4JH

Hawkeye Ventures, Inc.                      150,000         0.54          150,000            0            0
c/o Zysman, Aharoni, Gayer
51A Hayarkon Street
Tel Aviv (Attn: Shai Baranov)

JoRon Management                            150,000         0.54          150,000            0            0
C/o Seed Capital Partners
Key Center
50 Fountain Plaza
Buffalo, NY 14202

KKB Ventures LLC                          2,150,000         7.2           150,000    2,000,000          5.6
Attn: Ken Casey
285 Musketaquid Rd.
Concord, Ma.  01742
Timothy J.  Straight, Trustee 2/
The Straight Trust                          150,000         0.54          150,000            0            0
626 Partridge Avenue
Menlo Park, Ca  94025

Shem Basum Ltd.                              90,000         0.32           90,000            0            0
8 Hanna Senesh St.
Kfar-Sava 44358
Israel

Ehud Hillman                                108,985         0.39          106,985        2,000          .01
I.D. No. 051745818
Amirim 12,
Tel-Aviv, Israel-69357


                                       20



                                                                        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
---------------------------              ----------    -----------     ----------   ----------   ------------
                                                                                        
Gil Agmon                                    67,260         0.24           67,260            0            0
Barazani 11, Ramat Aviv,
Tel Aviv, Israel
ID No: 570261822

Jacob Benasayag                              67,260         0.24           67,260            0            0
I.D. No. 16538100
Haduhifat 41, Raanana, Israel

Arie Pundak                                 100,405         0.36          100,405            0            0
I.D. No. 065178444 Asher
Bar-Lev 5/13 Petach-Tikva,
Israel

Danitan Nihul Ltd.                          161,985         0.58          136,985       25,000         0.07
Reg. No.  511718470
Lamerhav 53b',
Ramat Hasharon, Israel - 47226

Gideon Mantel 3/                          1,914,773         6.7         1,123,288      791,485         2.34
c/o Commtouch Software, Inc.
1300 Crittenden Lane, Ste. 102
Mountain View, CA  94043-4655

Amir Lev 3/                                 899,931         3.2           273,974      625,957         1.86
Be'er Gan St. 17
Ein Vered, 40696 Israel

Nahum Sharfman 4/                         1,394,006         4.93          921,506      472,500         1.41
22 Hameyasdim St.
Karkur, Israel 37064

Origami Ltd.                                256,470         0.92          256,470            0            0
57 Achad Ha'am St.
Tel Aviv, CA 65207

Dr. A.I. Mlavsky                            273,974         0.98          273,974            0            0
c/o Gemini Israel Venture Funds Ltd.
9 Hamenofim Street
Herzliya  46725, Israel

Yossi Sela                                  273,974         0.98          273,974            0            0
c/o Gemini Israel Venture Funds Ltd.
9 Hamenofim Street
Herzliya  46725, Israel

Shmuel Sagi                                 628,945         2.25          547,945       81,000         0.24
PO Box 589
Karkur, 37105 Israel

Bingham McCutchen LLP 5/                    246,576         0.88          246,576            0            0
Three Embarcadero Center
San Francisco, CA 94111

TOTALS                                   22,066,335        54.81       13,947,993    8,118,342        20.17


      1/   Messrs.  Chen and Moshe Bardichev are relatives  (brothers in-law) of
           Mr. Amir Lev,  President,  Chief Technology Officer and director,  of
           Commtouch.


                                       21


      2/   Mr. Straight is VP Sales of Commtouch.

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

      4/   Mr. Sharfman is a director of Commtouch.

      5/   Bingham  McCutchen  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, 2002 we had  22,219,696  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;  the
1,406,612  shares  registered  in  August  2001  in  a  secondary  offering  for
shareholders of Wingra,  a former  subsidiary of the Company;  and the 7,095,886
shares  registered  in May  2002 for  certain  selling  securityholders  under a
private  placement,  as  identified  in the Form F-3 relating  thereto,  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,  8,793,564  of the
shares under this  prospectus,  relating to the two private  placements  of July
2003,  will also be  freely  tradeable  without  restriction,  unless  otherwise
indicated in the related prospectus supplement.

We have 3,684,211 shares remaining under a shelf Registration  Statement on file
with the SEC. Subject to this Registration Statement first being updated, as may
be required under  applicable  law, all of the shares  thereunder will be freely
tradeable when, as and if issued.

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 5,250,000 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.  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.  [The Employee Stock Purchase Plan was
since terminated in late 2001].

The Company 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
12,479,644 options issued in the past, as of August 31, 2003 there are 5,222,769
options  outstanding,  with 1,787,947 option shares being vested and unexercised
and 1,567,348 options having been exercised.

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 following 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,  with 373,990 having been exercised and 636,439 still
exercisable as of August 31, 2003.


                                       22


Warrants and Conversion Rights

Please  see Form 20-F for 2002  filed by the  Company  for  detail  relating  to
outstanding warrants and conversion rights granted in the past by the Company.

Restricted Shares--Rule 144

The remaining  ordinary  shares  outstanding,  if any,  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  335,103
           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.  Due to
restrictions under Israeli law, the repurchase of these shares is unlikely.


        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 SmallCap 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


                                       23


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) thirty-six  months  (eighteen months for
ordinary  shares sold under the February 2002 private  placement)  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.


                                       24


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
$106,888, which include the following categories of expenses:

        SEC registration fee .................................    $    792.11*
        Printing and engraving expenses.......................      10,000
        Legal fees and expenses ..............................      55,000
        Accounting fees and expenses..........................      25,000
        Transfer agent and registrar fees and expenses........      11,200
        Miscellaneous expenses................................       4,895.89
                                                                  -----------
        Total.................................................    $106,888

      *    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 Bingham McCutchen 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 Bingham McCutchen
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  Financial  statements of Commtouch  Software Ltd. appearing in
Commtouch  Software  Ltd's Annual Report (Form 20-F) for the year ended December
31, 2002, have been audited by Kost,  Forer & Gabbay,  a member of Ernst & Young
Global,  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.

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,  within 60 days after the end of each calendar
quarter.


                                       25


                      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, 2002;

(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,  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.


                                       26


                              FINANCIAL STATEMENTS

                                                                           Page
                                                                           ----

Condensed Consolidated Balance Sheets...................................   F-2
Condensed Consolidated Statements of Operations.........................   F-3
Consolidated Statements of Cash Flows...................................   F-4
Notes to Consolidated Financial Statements..............................   F-5


                                       F-1


                      CONDENSED CONSOLIDATED BALANCE SHEETS
                               (USD in thousands)

                                                       June 30,     December 31,
                                                         2003           2002
                                                     (Unaudited)      Audited
                                                      ---------      ---------
Assets
Current Assets:
   Cash and cash equivalents ....................     $   1,034      $   1,388
   Trade receivables, net .......................            --             64
   Prepaid expenses and other accounts receivable           145            231
                                                      ---------      ---------
   Total current assets .........................         1,179          1,683
                                                      ---------      ---------
Long-term lease deposits ........................             5              5
Equity investment in Imetrix ....................           240              3
Severance pay fund ..............................           311            264
Property and equipment, net .....................           698          1,029
                                                      ---------      ---------
                                                      $   2,433      $   2,984
                                                      ---------      ---------
Liabilities and Shareholders' Equity
Current Liabilities:
   Accounts payable .............................           347            338
   Employees and payroll accruals ...............           615            424
   Accrued expenses and other liabilities .......           281            372
                                                      ---------      ---------
   Total current liabilities ....................         1,243          1,134
                                                      ---------      ---------
   Other liabilities ............................           135            135
   Convertible loan, net ........................           243             --
    Accrued severance pay .......................           328            278
                                                      ---------      ---------
                                                            706            413
                                                      ---------      ---------
Shareholders' Equity
   Ordinary Shares ..............................           290            290
   Additional paid-in capital ...................       154,536        153,460
   Deferred stock compensation ..................          (151)          (277)
   Notes receivable from shareholders ...........          (339)          (365)
   Accumulated deficit ..........................      (153,852)      (151,671)
                                                      ---------      ---------
   Total shareholders' equity ...................           484          1,437
                                                      ---------      ---------
                                                      $   2,433      $   2,984
                                                      =========      =========


                                      F-2


           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
                  (USD in thousands, except per share amounts)


                                                          Three         Three          Six           Six
                                                          Months        Months        Months        Months
                                                          Ended         Ended         Ended         Ended
                                                         June 30,      June 30,      June 30,      June 30,
                                                           2003          2002          2003          2002
                                                         --------      --------      --------      --------
                                                                                       
Revenues:
   Email services ..................................     $     70      $    805      $    176      $  2,076
   Software licenses ...............................           --           200            --           200
                                                         --------      --------      --------      --------
   Total revenues ..................................     $     70      $  1,005      $    176      $  2,276
                                                         --------      --------      --------      --------
Cost of revenues:
   Email services ..................................          143           406           317         1,339
                                                         --------      --------      --------      --------
Gross profit (loss) ................................          (73)          599          (141)          937
                                                         --------      --------      --------      --------
Operating expenses:
   Research and development, net ...................          362           530           708         1,103
   Sales and marketing .............................          340           244           528           765
   General and administrative ......................          332           421           774         1,187
   Amortization of stock-based employee
      deferred compensation ........................           63           138           126           276
                                                         --------      --------      --------      --------
   Total operating expenses ........................        1,097         1,333         2,136         3,331
                                                         --------      --------      --------      --------
Operating loss .....................................       (1,170)         (734)       (2,277)       (2,394)
   Interest and other income (expense), net ........         (104)          (20)         (141)           24
   Equity in Income of Imetrix .....................          237            18           237            18
   Minority interest ...............................           --            11            --            74
                                                         --------      --------      --------      --------
   Loss from continuing operations .................       (1,037)         (725)       (2,181)       (2,278)
                                                         --------      --------      --------      --------
   Gain on disposal of Wingra ......................           --            --            --         1,014
   Discontinued operations - Wingra ................           --            --            --          (335)
                                                         --------      --------      --------      --------
Gain from sale of discontinued operations ..........           --            --            --           679
                                                         --------      --------      --------      --------
Net loss ...........................................     $ (1,037)     $   (725)     $ (2,181)     $ (1,599)
                                                         ========      ========      ========      ========
Basic and diluted net loss per share
   Loss from continuing operations .................     $  (0.05)     $  (0.03)     $  (0.10)     $  (0.12)
   Gain from sale of discontinued operations .......           --            --            --          0.04
                                                         --------      --------      --------      --------
   Net loss ........................................     $  (0.05)     $  (0.03)     $  (0.10)     $  (0.08)
                                                         ========      ========      ========      ========
Weighted average number of shares used
   in computing basic and diluted net loss per share       22,241        21,414        22,240        19,455
                                                         ========      ========      ========      ========



                                      F-3


                CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                               (USD in thousands)


                                                                                 Six months   Six months
                                                                                    ended        ended
                                                                                   June 30,     June 30,
                                                                                    2003         2002
                                                                                   -------      -------
                                                                                          
Cash flows from operating activities:
   Net loss ..................................................................     $(2,181)     $(1,599)
      Less loss for the period from discontinued operations ..................          --          335
   Adjustments to reconcile net loss to net cash used in Operating activities:
      Depreciation and amortization ..........................................         331        1,050
      Amortization of stock-based employee deferred
         compensation and warrants issued for services received ..............         126          276
      Amortization of convertible loan discount related beneficial
         conversion feature and warrants fair value ..........................          69           --
      Loss from sale of property and equipment ...............................          --          194
      Gain from sale of discontinued operations ..............................          --       (1,014)
      Share of equity interest ...............................................        (237)         (18)
   Changes in assets and liabilities:
      Trade receivables, net .................................................          64          (79)
      Prepaid expenses and other accounts receivable .........................          86          451
      Accounts payable .......................................................           9         (826)
      Employee and payroll accruals, accrued expenses and other liabilities ..         100         (663)
      Deferred revenues ......................................................          --         (339)
      Accrued severance pay, net .............................................           3          (83)
      Minority interest in losses of a consolidated subsidiary ...............          --          (74)
      Other ..................................................................         (11)         357
                                                                                   -------      -------
Net cash used in operating activities ........................................      (1,641)      (2,032)
                                                                                   -------      -------
Cash flows from investing activities:
   Long-term lease deposits ..................................................          --           (3)
   Sale of Wingra ............................................................          --         (193)
   Sale of consolidated subsidiary ...........................................          --            1
   Proceeds from sale of property and equipment ..............................          --          402
                                                                                   -------      -------
Net cash provided by investing activities ....................................          --          207
                                                                                   -------      -------
Cash flows from financing activities:
   Repayment of note receivable by shareholder ...............................          26            3
   Proceeds from issuance of convertible loan ................................       1,258           --
   Principal payment of capital lease ........................................          --          (40)
   Proceeds from issuance of shares, net .....................................           3        1,352
                                                                                   -------      -------
Net cash provided by financing activities ....................................       1,287        1,315
                                                                                   -------      -------
Decrease in cash and cash equivalents ........................................        (354)        (510)
Cash and cash equivalents at the beginning of the period .....................       1,388        2,248
                                                                                   -------      -------
Cash and cash equivalents at the end of the period ...........................     $ 1,034      $ 1,738
                                                                                   =======      =======



                                      F-4


The proceeds from the sale of Wingra, for six months ended June 30, 2002 were as
follows:

          Tangible assets sold ....................          $   314
          Liabilities transferred .................           (1,521)
                                                             -------
          Net liabilities transferred: ............           (1,207)
          Cash transferred: .......................              193
                                                             -------
          Gain from sale of Wingra ................          $(1,014)

The proceeds from the sale of shares in consolidated  subsidiary (Commtouch K.K.
(Japan),  now known as  Imetrix),  for six months  ended  June 30,  2002 were as
follows:

          Tangible assets .........................          $   421
          Liabilities .............................             (267)
                                                             -------
          Net assets transferred: .................              154
          Cash received: ..........................                1
                                                             -------
          Loss from sale of consolidated subsidiary          $   153


                                      F-5


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
--------------------------------------------------------------------------------

NOTE 1: GENERAL

a. Commtouch Software Ltd.  ("Commtouch",  "the Company") was incorporated under
the laws of Israel in 1991.  Commtouch has five  subsidiaries:  Commtouch  Inc.,
Commtouch  (UK) Ltd,  Commtouch  Latin  America Inc.  (dissolved  during  2002),
Wingra, Inc. ("Wingra") (sold during 2002) and Commtouch K.K.  (Japan)(now known
as Imetrix)  (majority  owned during a portion of 2002,  and in which  Commtouch
Software Ltd. currently holds a 32% interest).

The Company and its subsidiaries  develop and provide email anti-spam  solutions
to  enterprises.  Until  December  31,  2002,  the Company and its  subsidiaries
provided  email and  messaging  solutions,  to  customers  ranging  from service
providers to large and small  businesses,  who offered the  Company's  Web-based
email through their website to their end users.

In 2002, the Company sold its migration  service business and most of its hosted
email services and, while it initially  changed its focus to providing email and
messaging  solutions to service providers,  it subsequently ceased promoting its
email and messaging solutions and began  concentrating  solely on developing its
anti-spam solutions.

In consideration  of the sale of most of its hosted email services,  the Company
received up front  non-refundable  license fee and is entitled to royalties from
the sales to its past customers.  Royalties are paid according to the collection
from these customers.

For the six-months  ended June 30, 2003,  100% of the revenues were derived from
four  customers  (39% from  customer A, 38% from customer B, 12% from customer C
and 11% from  customer D). For the  six-months  ended June 30, 2002,  51% of the
revenues  were  derived  from two  customers  (34% from  customer A and 17% from
customer B).

b. Basis of preparation:

The accompanying  unaudited interim consolidated  financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information.  Accordingly, they do not include all the information and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included. Operating results for the six months ended June 30, 2003, are not
necessarily indicative of the results of operations that may be expected for the
year ended December 31, 2003.

The  balance  sheet at  December  31,  2002 has been  derived  from the  audited
financial  statements  at that date but does not include all of the  information
and footnotes required by generally accepted accounting  principles for complete
financial statements.

For further  information,  refer to the  consolidated  financial  statements and
footnotes thereto included in the Registrant  Company and  Subsidiaries'  annual
report on Form 20-F for the year ended December 31, 2002.

c. Discontinued operations

In November 2000, the Company acquired Wingra  Technologies Inc.  ("Wingra"),  a
provider of messaging integration and migration solutions for large enterprises.

In February 2002, the Company sold off its migration service  business,  Wingra,
to Wingra's  senior  management.  The results of  operations of Wingra have been
eliminated from the consolidated  results of operations of Commtouch as a result
of the disposal transaction.


                                      F-6


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
--------------------------------------------------------------------------------

The proceeds from the sale of Wingra, for six months ended June 30, 2002 were as
follows:

                 Tangible assets: ...........          $   314
                 Liabilities transferred ....           (1,521)
                                                       -------
                 Net liabilities transferred:           (1,207)
                 Cash transferred: ..........              193
                                                       -------
                 Gain from sale of Wingra ...          $ 1,014
                                                       =======

The results of operations including revenue, operating expenses and other income
and  expense  of  Wingra  for 2002 have been  reclassified  in the  accompanying
statements of operations as discontinued operations.

Summary  operating  results from the  discontinued  operation for the six months
ended June 2002 are as follows:


                 Revenues ...................          $   157
                 Cost of revenues ...........               76
                                                       -------
                 Gross profit ...............               81
                 Operating expenses .........              416
                                                       -------
                 Operating loss .............          $  (335)
                                                       =======

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

The  consolidated  financial  statements  have been prepared in accordance  with
accounting principles generally accepted in the United States (U.S. GAAP").

a. Use of Estimates:

The  preparation  of  consolidated   financial  statements  in  conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the amounts  reported in the consolidated  financial
statements  and  accompanying  notes.  Actual  results  could  differ from those
estimates.

b. Stock-Based Compensation:

The Company has elected to follow  Accounting  Principles  Board  Opinion No. 25
("APB 25")  "Accounting  for Stock Issued to Employees" and FASB  Interpretation
No. 44 "Accounting for Certain Transactions Involving Stock Compensation," ("FIN
44") in accounting for its employee  stock option plans.  Under APB 25, when the
exercise  price of the  Company's  stock  options  equals or is above the market
value of the underlying  stock on the date of grant, no compensation  expense is
recognized.

In  December  2002,  the FASB  issued  SFAS 148,  "Accounting  for  Stock  Based
Compensation Transition and Disclosure" - an amendment of FASB Statement No. 123
("SFAS 148").  SFAS 148 permits two additional  transition  methods for entities
that adopt the fair value based method of accounting  for  stock-based  employee
compensation.  The  statement  also requires new  disclosures  about the ramp-up
effect of stock-based  employee  compensation on reported results. The Statement
also requires that those effects be disclosed more prominently by specifying the
form,  content,  and location of those disclosures.  The transition guidance and
annual  disclosure  provisions of SFAS 148 are effective for fiscal years ending
after  December  15,  2002,  with  earlier  application   permitted  in  certain
circumstances.  The interim  disclosure  provisions  are effective for financial
reports  containing  financial  statements for interim  periods  beginning after
December 15, 2002. As at the balance sheet date, the Company  continues to apply
APB 25.


                                      F-7


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
--------------------------------------------------------------------------------

Pro forma information under SFAS 123 are as follows:

                                          Six months        Six months
                                             ended             ended
                                            June 30,          June 30,
                                             2003              2002
                                            -------           -------

Net loss as reported .............          $(2,181)          $(1,599)

Add:
Stock based compensation expense
included in the determination
of net loss, as reported .........              276               276

Deduct:
Stock based compensation expense
determined under fair value method
for all awards ...................           (2,210)           (2,111)
                                            -------           -------
Pro forma net loss ...............          $(4,115)          $(3,434)
                                            =======           =======

Pro forma basic and diluted
net loss per share ...............          $ (0.19)          $ (0.17)
                                            =======           =======

The Company  applies SFAS 123 and Emerging  Issues Task Force 96-18  "Accounting
for Equity Instruments that are Issued to Other than Employees for Acquiring, or
in Conjunction  with Selling,  Goods or Services" ("EITF 96-18") with respect to
options issued to  non-employees.  SFAS 123 requires use of an option  valuation
model  to  measure  the fair  value  of these  options  at the  grant  date.  In
accounting  for  warrants  granted to those  other than  employees,  the Company
applied the provisions of SFAS No. 123, and EITF 96-18.  The fair value of these
warrants was estimated at the grant date, using the Black-Scholes option-pricing
model.

c. Recently Issued Accounting Pronouncements:

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable  Interest  Entities"  ("FIN 46"). The objective of FIN 46 is to improve
financial  reporting by companies  involved with variable interest  entities.  A
variable  interest  entity is a corporation,  partnership,  trust,  or any other
legal structure used for business  purposes that either (a) does not have equity
investors  with voting  rights or (b) has equity  investors  that do not provide
sufficient financial resources for the entity to support its activities.  FIN 46
requires  a variable  interest  entity to be  consolidated  by a company if that
company is subject to a majority of the risk of loss from the variable  interest
entity's  activities or entitled to receive a majority of the entity's  residual
returns  or both.  FIN 46 also  requires  disclosures  about  variable  interest
entities that the company is not required to  consolidate  but in which it has a
significant variable interest.

In January 2003, the FASB issued FASB  Interpretation No. 46,  "Consolidation of
Variable Interest Entities" (FIN 46). This interpretation of Accounting Research
Bulletin No. 51, "Consolidated Financial Statements", addresses consolidation of
variable interest  entities.  FIN 46 requires certain variable interest entities
("VIE's") to be consolidated  by the primary  beneficiary if the entity does not
effectively disperse risks among the parties involved.  The provisions of FIN 46
are effective  immediately for those variable  interest  entities  created after
January 31,  2003.  The  provisions,  as amended,  are  effective  for the first
interim or annual  period  ending  after  December  15, 2003 for those  variable
interests  held prior to  February  1, 2003.  While the  Company  believes  this
Interpretation  will not have a material  effect on its  financial  position  or
results of  operations,  it is  continuing to evaluate the effect of adoption of
this Interpretation.

NOTE 3: EQUITY INTEREST

At June 30,  2003 the  Company  owned 32% of the  equity  and  voting  rights of
Commtouch,  K.K. (Japan) (now known as Imetrix). During the second quarter ended
June 30,  2003,  Commtouch  recognized  $237 as  equity  in  income  of  Imetrix
(formerly Commtouch Japan).


                                      F-8


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
--------------------------------------------------------------------------------

NOTE 4: CONVERTIBLE LOAN

On January 29, 2003  Commtouch  entered into a Convertible  Loan  Agreement with
certain  lenders  according  to which the Company is entitled to receive up to a
maximum  possible  loan (the  "Loan")  amount of $1,258.  Through  June 2003 the
Company has received the total Loan amount of $1,258 from the lenders.  The Loan
is to be repaid after three years, unless converted into Commtouch shares by the
lenders or a defined  event  triggering  early  repayment is met. The Loan bears
interest at a rate of ten percent per annum.  Furthermore,  the Loan's principal
and  interest  may be converted by the lenders into equity in the Company at any
time during the Loan term,  at a conversion  price of $0.25 per  ordinary  share
("Conversion  Price").  Warrants  exercisable for purchase of up to 5,000,000 of
the  Company's  ordinary  shares have been issued to the lenders  (based on such
Loan amounts  advanced divided by the Conversion  Price).  Each one-third of the
warrants are exercisable at prices per ordinary share of $0.25,  $0.33 and $0.50
respectively,  and the warrants are exercisable at any time within five years of
issuance.  Warrants shall also be issued on an annual basis for any  accumulated
interest on the Loan.

In accordance with APB No. 14 "Accounting  for Convertible  Debt and Debt Issued
with Stock Purchase Warrants" ("APB 14"),  Commtouch  allocated a portion of the
proceeds  to the  warrants,  based  on their  applicable  fair  values.  Amounts
allocated to the warrants  totaling $1,045,  were recorded as additional paid in
capital.

The  fair  value  of the  warrants  was  estimated  at the  grant  date  using a
Black-Scholes  option  pricing model with the following  assumptions:  risk-free
interest rate of 3.7%,  dividend yield of 0%, volatility factors of the expected
market price of the Commtouch  Ordinary  shares of 1.384 and an expected life of
five years.

In  accordance  with EITF 98-5,  "Accounting  for  Convertible  Securities  with
Beneficial  Conversion  Features or Contingent  Adjustable  Conversion  Rations"
("EITF  98-5"),  Commtouch  recorded  to  additional  paid in capital $39 as the
beneficial  conversation feature attributed to the convertibility feature of the
Loan.

Amounts reflecting the fair value of the warrants and the beneficial  conversion
feature of the Loan have been  recorded as discounts  on the Loan.  The discount
related to the warrants and the beneficial  conversion  feature was amortized as
financial expenses over the term of the Loan.

NOTE 5: LITIGATION

Class Action Litigation

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 was granted. The plaintiffs then filed
a second amended and  consolidated  complaint,  and our second motion to dismiss
was only partially accepted, with the end result being that the plaintiffs filed
a third  amended  and  consolidated  complaint.  We  (including  the  individual
defendants) filed an answer to that complaint,  and the case then moved into the
discovery stage, with the case being set for trial in January 2004. In May 2003,
a settlement  agreement was signed between the plaintiffs and defendants and the
court  thereafter  issued a  preliminary  order  approving the  settlement.  The
settlement  calls for the  payment of $15 million to the  plaintiffs,  with this
amount to be fully funded by the Company's  Directors and Officers  policy.  The
payment to  plaintiffs  under this  settlement  should not cause the Company any
financial  hardship.  On  September  24, 2003,  the court  entered a final order
approving the settlement and, as of such date, no class member had chosen to opt
out of the  settlement.  The  settlement  does not  contain  any  admissions  or
findings  of  wrongdoing  on the  part of the  defendants,  and we  continue  to
maintain that the Company and individual defendants acted properly at all times.

NOTE 6: GEOGRAPHIC INFORMATION

The Company  conducts its business on the basis of one  reportable  segment (see
Note 1 for brief description of the Company's business).


                                      F-9


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
--------------------------------------------------------------------------------

Revenues from external customers:

                                       Six-months  Six-months
                                         ended        ended
                                        June 30,     June 30,
                                         2003         2002
                                        ------       ------
                      Israel ......     $   18       $  436
                      U.S.A .......        158          698
                      Europe ......         --          894
                      Japan .......         --          227
                      Latin America         --           31
                                        ------       ------
                                        $  176       $2,276
                                        ======       ======

The Company's long-lived assets are as follows:

                                       Six-months  Six-months
                                         ended        ended
                                        June 30,     June 30,
                                         2003         2002
                                        ------       ------
                       Israel ....      $  435     $  441
                       U.S.A .....         263        588
                                        ------     ------
                                        $  698     $1,029
                                        ======     ======


NOTE 7: LOSS PER SHARE:

The following table sets forth the computation of basic and diluted net loss per
share:

1. Numerator:


                                                                             Six months ended
                                                                                  June 30,
                                                                      -------------------------------
                                                                           2003                2002
                                                                       ----------          ----------
                                                                                  Unaudited
                                                                       ------------------------------
                                                                                     
     Numerator for basic and diluted loss per share                            --
     Numerator for basic and Loss available to Ordinary shareholders   $   (2,181)         $   (1,599)
                                                                       ==========          ==========
2. Denominator (in thousands):
     Denominator for basic and diluted loss per share                          --
     Weighted average number of shares                                     22,240              19,455
                                                                       ==========          ==========


All  outstanding  stock  options  and  warrants  have  been  excluded  from  the
calculation  of the  diluted  loss per share  because  all such  securities  are
anti-dilative for all periods  presented.  The total number of shares related to
outstanding  options and warrants  excluded from the calculations of diluted net
loss per share were  12,554,982 and 4,835,088 six months ended June 30, 2003 and
June 30, 2002, respectively.


NOTE 8: SUBSEQUENT EVENTS:

In July 2003 Commtouch entered into a private  placement  agreement with several
existing and new investors. Commtouch issued approximately 2.88 million ordinary
shares  against the  investment  of $1,440,  or $0.50 per ordinary  share by the
investors.  The investors also received warrants to purchase up to an additional
1.44 million  ordinary  shares,  exercisable at a price of $0.50 per share.  The
warrants are currently exercisable and expire in five years.

Additionally, a private placement was secured in late July 2003 from Israel Seed
Partners, a major Israel venture capital group, Argos Capital Management,  a New
York  based  hedge  fund and a private  individual  investor.  Commtouch  issued
2,666,667  million  ordinary  shares  against the  investment  in the company by
Israel  Seed  Partners  of  $1,000,  Argos  Capital  of $500 and the  individual
investor of $100,  or $0.60 per  ordinary  share.  The  investor  also  received
warrants  to  purchase  up  to  an  additional  1.6  million   ordinary  shares,
exercisable  at  a  price  of  $0.65  per  share.  The  warrants  are  currently
exercisable and expire in five years.


                                      F-10


                           13,947,992 Ordinary Shares


                             COMMTOUCH SOFTWARE LTD.


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


                                   PROSPECTUS


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


                                November 20, 2003