UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                 AMENDMENT NO. 2

                                       TO

                                    FORM 20-F

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1999

                        Commission file number 000-26495

                             COMMTOUCH SOFTWARE LTD.
         ---------------------------------------------------------------
    (Exact name of Registrant as specified in its charter and translation of
                         Registrant's name into English)

                                     Israel
         ---------------------------------------------------------------
                 (Jurisdiction of incorporation or organization)

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

                    James E. Collins, Chief Financial Officer
                         3945 Freedom Circle, Suite 400
                          Santa Clara, California 95054
                                  (408)653-4330
            (name, address, including zip code, and telephone number,
              including area code of agent for service of process)


         ---------------------------------------------------------------
Securities registered or to be registered pursuant to Section 12(b) of the Act.

          Title of each class         Name of each exchange on which registered
        ----------------------       -------------------------------------------
                  N/A                                  None


Securities registered or to be registered pursuant to Section 12(g) of the Act.

                  Ordinary Shares, par value NIS 0.05 per share
         ---------------------------------------------------------------
                                (Title of Class)

Securities for which there is a reporting  obligation  pursuant to Section 15(d)
of the Act.

                                      None
         ---------------------------------------------------------------

     Indicate the number of outstanding  shares of each of the issuer's  classes
of capital or common  stock as of the close of the period  covered by the annual
report.

     Ordinary Shares, par value NIS 0.05                        15,199,344


                                                                          Page 1


<PAGE>


     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes [X] No [_]

     Indicate by check mark which  financial  statement  item the registrant has
elected to follow.

                             Item 17 [_] Item 18 [X]

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



                                     PART I


Item 5. Nature of Trading Market.

The Company's  Ordinary  Shares have traded  publicly on The Nasdaq Stock Market
under the symbol  "CTCH"  since July 13,  1999.  The  Company's  initial  public
offering price was $16.00 per share.

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


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

2000:
  First Quarter                                   $ 66.50    $ 35.5625



If the Company decides to distribute a cash dividend out of income that has been
exempted from tax, the income out of which the dividend is  distributed  will be
subject to the 25% Israeli corporate tax rate. The Company has never declared or
paid cash dividends on its Ordinary  Shares and does not  anticipate  paying any
cash dividends in the foreseeable  future.  The Company intends to retain future
earnings to finance the development of its business.


The Company has 80 registered  shareholders and  approximately  5,279 beneficial
holders.



Item 9. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

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


                                                                          Page 2


<PAGE>


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 under "Item  1--Risk  Factors"
and in the Company's other filings with the Securities and Exchange Commission.

Overview

We are a leading global  provider of outsourced  integrated  Web-based email and
messaging   solutions  to  businesses.   Our  solutions  are  flexible,   highly
customizable  and enable us to satisfy the unique email and  messaging  needs of
our customers worldwide.  Our customers are large and small businesses who offer
our Web-based  email through their website to their end users and employees.  As
of December 31, 1999, we had over 250 global  customers.  Through our customers'
sites we serve  approximately 8.4 million active emailboxes.  We also serve over
1.0 million  active  emailboxes  to small  businesses  and websites  through our
ZapZone Network.

Revenue Sources

Service  Fees.  During 1999,  most of our email  service  revenue  resulted from
contracts  that required our  customers to pay us either a share of  advertising
revenues  subject  to a minimum  annual  revenue  commitment  or a  monthly  per
emailbox  price  subject  to a  minimum  commitment  fee,  and fees  for  direct
marketing and communications services.

Prior to 1999,  some of our contracts with customers  provided for email service
fees based solely on a share of banner advertising revenue, recognized only when
such revenues were earned by the customers, with no minimum annual commitment.

Direct  E-marketing.  Ecommerce  vendors seek  channels  through  which they can
market goods and services. Because of our installed user base and our agreements
with our customers,  we can assist  ecommerce  companies in  distributing  their
services to our  customers' end users who have opted to receive offers by email.
We share with our customers the revenues from this direct e-marketing, which are
earned either on a per-message  basis, a referral  basis,  or as a commission on
products  sold.  In the  fourth  quarter  of 1998,  we  began  to  offer  direct
e-marketing  opportunities to ecommerce vendors on a test basis. In 1999, direct
e-marketing  revenues became a meaningful portion of revenue.  We recognized 11%
of our total revenues from MyPoints, a permission based email service company.

Strategic Transaction with Go2Net

Concurrent with the sale of our shares in the initial public offering we entered
into  an  agreement  with  Go2Net,   a  network  of  branded,   technology-  and
community-driven  websites  focused on personal  finance,  commerce,  and games.
Go2Net also  develops  Web-related  software.  Pursuant to the  agreement we are
offering Go2Net's end users a private label email service,  including our email,
calendaring and other services. The services are customized to the look and feel
of Go2Net's websites.  The terms of this agreement are substantially the same as
our commercial  agreements  with other  customers  except that we have agreed to
share a materially greater portion of our advertising  revenues with Go2Net than
we are sharing under other similar agreements.  In addition,  in connection with
the  agreement,  we issued to Go2Net a warrant to  purchase  1,136,000  ordinary
shares at a per share  exercise  price of $12.80,  subject to  adjustment as set
forth in the  warrant.  The  warrant is fully  vested and  non-forfeitable.  The
warrant  will  expire on July 16,  2004,  the fifth  anniversary  of the initial
public offering.  The fair value of the warrant,  estimated at $5.8 million,  is
being  amortized  to  operating  expenses  ratably  over the minimum term of the
agreement,  which is one year. Simultaneously with the sale of the shares in the
initial public offering,  we sold a total of 1,344,086 ordinary shares to Go2Net
and Vulcan Ventures Incorporated at $14.88 per share in a private placement.  In
the future, we may have to issue  in-the-money  warrants to acquire our ordinary
shares to customers who provide us with a large base of potential end users.  We
may also have to provide these  customers with more favorable  commercial  terms
than we have previously provided to our customers.  The issuance of in-the-money
warrants and the grant of more  favorable  terms to customers may further dilute
our shareholders,  increase our operating loss in the future and cause our stock
price to fall.


                                                                          Page 3


<PAGE>


Issuance of Shares Upon Exercise of Microsoft Warrant

We entered into an Email Services  Agreement with  Microsoft  Corporation  dated
October 26, 1999. Under this agreement,  Commtouch will, at Microsoft's  option,
customize,  host and maintain email services for Microsoft  websites in the U.S.
and  internationally.  Microsoft  will  pay  one-time  fees for the  set-up  and
customization  of the email  service  for each  website  with  respect  to which
Microsoft chooses to use our services, as well as quarterly service fees for the
email service based on the number of mailboxes hosted. The term of the agreement
shall continue for 12 months after the first commercial distribution date of the
email service and Microsoft may extend the initial term on a quarterly or annual
basis upon 60 days prior  written  notice.  The  agreement  may be terminated by
Microsoft for convenience upon 90 days' prior written notice, or by either party
upon a  material  breach by the other  party  upon the  terms  specified  in the
agreement.  In connection  with the agreement,  Commtouch  issued to Microsoft a
fully vested warrant,  exercisable  until December 29, 1999, to purchase 707,965
of Commtouch's  ordinary  shares at an exercise price of $28.25 per share for an
aggregate  exercise  price of $20.0  million.  On December 29,  1999,  Microsoft
exercised the warrant and now holds 707,965 ordinary  shares.  The fair value of
the warrant,  estimated at $1.9 million, is amortized to operating expenses over
the minimum term of the agreement (12 months).

Results of Operations

<TABLE>
The following  table sets forth  financial data for the years ended December 31,
1997, 1998 and 1999 (in thousands):

<CAPTION>

                                                                                               Year Ended December 31,
                                                                                       --------------------------------------------
                                                                                         1997              1998              1999
                                                                                       --------          --------          --------
Revenues:

<S>                                                                                    <C>               <C>               <C>
 Email services ..............................................................         $   --            $    389          $  4,251
 Software licenses, maintenance and services .................................              899              --                --
                                                                                       --------          --------          --------
   Total revenues ............................................................              899               389             4,251
                                                                                       --------          --------          --------
Cost of revenues:
 Email services ..............................................................             --                 569             3,643
 Software licenses, maintenance and services .................................              165              --                --
                                                                                       --------          --------          --------
   Total cost of revenues ....................................................              165               569             3,643
                                                                                       --------          --------          --------
 Gross profit (loss) .........................................................              734              (180)              608
                                                                                       --------          --------          --------
Operating expenses:
 Research and development, net ...............................................            1,108             1,149             2,942
 Sales and marketing .........................................................            2,202             2,001             7,722
 General and administrative ..................................................              829               604             4,328
 Amortization of prepaid marketing expenses ..................................             --                --               3,263
 Amortization of stock-based employee deferred compensation ..................             --                  91             3,436
                                                                                       --------          --------          --------
   Total operating expenses ..................................................            4,139             3,845            21,691
                                                                                       --------          --------          --------
Operating loss ...............................................................           (3,405)           (4,025)          (21,083)
Interest and other income (expenses), net ....................................              (68)             (326)            1,232
                                                                                       --------          --------          --------
Net loss .....................................................................         $ (3,473)         $ (4,351)         $(19,851)
                                                                                       ========          ========          ========
</TABLE>


Comparison of Years Ended December 31, 1997, 1998 and 1999

In 1997,  we ceased all sales of  stand-alone  email client  software  licenses,
maintenance  and services and focused on developing our Web-based  email service
business. Accordingly, comparisons between 1997 and 1998 are not meaningful.

Revenues.  Email service  revenues  increased 993% from $389,000 in 1998 to $4.3
million in 1999. One customer,  Excite,  represented 54% of the revenue in 1998.
Revenues from MyPoints,  a permission based email service  company,  represented
11% of total revenues during 1999. As of December 31, 1999, the Company had firm
backlog  from  minimum  commitments  under take or pay  contracts  amounting  to
approximately  $13.1  million,  which will be  recognized as revenue over future
quarters.

Cost of Revenues.  Cost of revenues increased 540% from $569,000 in 1998 to $3.6
million in 1999, due to the increase in costs  associated with the new contracts
served  during  1999.  The cost  increase  between  1998 and 1999 was  primarily


                                                                          Page 4


<PAGE>


attributed  to an  equivalent  increase in  personnel  and  related  costs  and
depreciation.  Cost of revenues  consisted  primarily of  personnel  and related
costs,  depreciation  of  equipment,  and costs  related  to third  parties  for
Internet data center and access charges.  We expect cost of revenues to increase
on an absolute basis,  primarily as a result of an increase in our email service
revenues,  but to decrease as a  percentage  of email  service  revenues  due to
economies of scale.

Research and Development Costs, Net. Research and development expenses increased
156% from $1.1  million in 1998 to $2.9  million  in  1999  due  primarily to an
increase in personnel and other related costs.  In previous  years,  we received
royalty-bearing  grants from the Israeli government,  recorded as a reduction of
research and  development  costs.  We have an obligation to pay royalties to the
Israeli government with a remaining future liability of $270,000. We expect that
research and  development  costs will  increase due to increased  personnel  and
related costs  associated with the accelerated  development of new email service
offerings.

Sales and  Marketing.  Sales and  marketing  expenses  increased  286% from $2.0
million in 1998 to $7.7 million in 1999,  due  primarily to increased  personnel
and  related  costs.  We  expect  sales  and  marketing   expenses  to  increase
significantly  in the future in  absolute  dollar  amounts due to  increases  in
personnel  costs related  directly to new employees being hired to conduct sales
and the related market support to further develop our brand. Sales and marketing
expenses  were $2.2  million in 1997 and related  only to the  software  license
sales that were discontinued in 1997.

General and Administrative.  General and administrative  expenses increased 617%
from  $604,000 in 1998 to $4.3 million in 1999,  due  primarily to personnel and
related  costs.  We expect  general and  administrative  costs to increase on an
absolute  basis due to increased  personnel and related costs,  higher  facility
costs associated with additional  personnel and other costs necessary to support
and develop the email service business. General and administrative expenses were
$829,000  in 1997 and  related  only to the  software  license  sales  that were
discontinued in 1997.

Amortization of Prepaid  Marketing  Expenses.  Amortization of prepaid marketing
expenses  related to the Go2Net and Microsoft  warrants and totaled $3.3 million
for  1999.  The  prepaid   marketing   expense  is  being  amortized  using  the
straight-line  method over the one-year  minimum term of each of the  commercial
agreements.

Amortization  of Stock-based  Employee  Deferred  Compensation.  Our stock-based
employee deferred  compensation  expenses increased 3,676% from $91,000 for 1998
to $3.4 million for 1999. The deferred compensation is being amortized using the
sum-of-digits method over the vesting schedule, generally four years.

Interest  and Other  Income  (Expense),  Net.  Our  interest  and  other  income
(expense),  net,  increased  from a net  expense of  $326,000  for 1998 to a net
income of $1.2 million for 1999,  due  primarily to  increased  interest  income
earned from cash equivalents and marketable securities.

Income  Taxes.  As of December 31, 1999, we had  approximately  $22.5 million of
Israeli net operating loss  carryforwards  and $14.2 million of U.S. federal net
operating loss carryforwards available to offset future taxable income. The U.S.
net operating  loss  carryforwards  will expire in various  amounts in the years
2008 to 2020.  The Israeli net operating loss  carryforwards  have no expiration
date.

                                                                          Page 5


<PAGE>


Quarterly Results of Operations

<TABLE>
The  following  table sets  forth  certain  unaudited  quarterly  statements  of
operations data for the eight quarters ended December 31, 1999. This information
has been derived from the Company's consolidated unaudited Financial Statements,
which,  in  management's  opinion,  have been  prepared on the same basis as the
audited  Consolidated   Financial  Statements,   and  include  all  adjustments,
consisting  only  of  normal  recurring   adjustments,   necessary  for  a  fair
presentation  of the information for the quarters  presented.  This  information
should be read in conjunction with our audited Consolidated Financial Statements
and the Notes thereto included  elsewhere in this report.  The operating results
for any quarter are not necessarily  indicative of the operating results for any
future period.

<CAPTION>

                                                                                Three Months Ended
                                               ------------------------------------------------------------------------------------
                                               Mar. 31,  Jun. 30,   Sept. 30,  Dec. 31,   Mar. 31,   Jun. 30,  Sept. 30,    Dec. 31,
                                                1998       1998       1998       1998       1999       1999       1999        1999
                                               -------    -------    -------    -------    -------    -------    -------    -------
                                                                                   (in thousands)

<S>                                            <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Email service revenues .....................   $    32    $    59    $   130    $   168    $   346    $   552    $ 1,117    $ 2,236
Cost of email service revenues .............        59         85        166        259        435        605      1,043      1,560
                                               -------    -------    -------    -------    -------    -------    -------    -------
Gross profit (loss) ........................       (27)       (26)       (36)       (91)       (89)       (53)        74        676
                                               -------    -------    -------    -------    -------    -------    -------    -------
Operating expenses:
 Research and development,
   net .....................................       266        305        308        270        340        510        857      1,235
 Sales and marketing .......................       459        506        509        527        608      1,363      2,368      3,383
 General and administrative ................       138        137        151        178        617        683      1,345      1,683
 Amortization of prepaid
   marketing expenses ......................      --         --         --         --         --         --        1,464      1,799
 Amortization of stock-based
   employee compensation ...................         2          8         18         63        386      1,013      1,096        941
                                               -------    -------    -------    -------    -------    -------    -------    -------
   Total operating expenses ................       865        956        986      1,038      1,951      3,569      7,130      9,041
                                               -------    -------    -------    -------    -------    -------    -------    -------
Operating loss .............................      (892)      (982)    (1,022)    (1,129)    (2,040)    (3,622)    (7,056)    (8,365)
Interest and other income
 (expenses), net ...........................       (27)       (59)       (28)      (212)      (271)         6        577        920
                                               -------    -------    -------    -------    -------    -------    -------    -------
Net loss ...................................   $  (919)   $(1,041)   $(1,050)   $(1,341)   $(2,311)   $(3,616)   $(6,479)   $(7,445)
                                               =======    =======    =======    =======    =======    =======    =======    =======
</TABLE>


Fluctuations in Quarterly Results

We have incurred operating losses since inception, and we cannot be certain that
we will achieve  profitability on a quarterly or annual basis in the future. Our
results of operations  have  fluctuated  and are likely to continue to fluctuate
significantly from quarter to quarter as a result of a variety of factors,  many
of which are outside of our  control.  A relatively  large  expense in a quarter
could have a  negative  effect on our  financial  performance  in that  quarter.
Additionally,  as a strategic response to a changing competitive environment, we
may elect  from time to time to make  certain  pricing,  service,  marketing  or
acquisition  decisions  that  could  have a  negative  effect  on our  quarterly
financial performance. Other factors that may cause our future operating results
to fluctuate include, but are not limited to:

     o   continued growth of the Internet and of email usage;

     o   demand for Web-based email services;

     o   our  ability to attract  and retain  customers  and  maintain  customer
         satisfaction;

     o   our  ability  to  upgrade,   develop  and   maintain  our  systems  and
         infrastructure;

     o   the amount  and  timing of  operating  costs and  capital  expenditures
         relating to expansion of our business and infrastructure;

     o   the size, timing and fulfillment of orders for our email services;

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

     o   technical difficulties or system outages;

     o   foreign exchange rate fluctuations;

     o   the  announcement or  introduction  of new or enhanced  services by our
         competitors;

     o   our ability to attract and retain  qualified  personnel  with  Internet
         industry expertise, particularly sales and marketing personnel;

     o   the pricing policies of our competitors;

     o   failure to increase our sales; and

     o   governmental   regulation  relating  to  the  Internet,  and  email  in
         particular.

In addition  to the  factors set forth  above,  our  operating  results  will be
impacted  by the  extent  to which we incur  non-cash  charges  associated  with
stock-based arrangements with employees and non-employees.

                                                                          Page 6

<PAGE>


Liquidity and Capital Resources

We have financed our operations  principally from the sale of equity  securities
and to a lesser extent from bank loans and research and development  grants from
the  Israeli  government.  In the first  quarter  of 1999,  we  issued  Series C
Convertible  Preferred  Shares to  investors  resulting  in net proceeds of $5.3
million.  In the second  quarter  of 1999,  we issued to  investors  Convertible
Promissory  Notes  which  later  converted  into  42,081  Series  D  Convertible
Preferred Shares,  resulting in net proceeds of approximately $13.2 million. All
of our convertible preferred shares automatically converted into ordinary shares
upon the closing of our initial  public  offering on July 16, 1999.  On July 16,
1999, we raised $70.8 million, net of underwriters commissions, from our initial
public  offering  (including  the  exercise of the  underwriters'  overallotment
option) and the private  placement of our ordinary shares in connection with the
strategic  partnership with Go2Net and Vulcan Ventures.  On December 29, 1999 we
raised an additional $20.0 million from the sale of ordinary shares to Microsoft
Corporation  upon the exercise of a warrant  issued in connection  with an email
services agreement with Microsoft. As of December 31, 1999, we had $66.0 million
in cash and cash equivalents and $18.1 million in marketable securities.

Net cash provided by financing  activities  was $102.9 million in 1999. Net cash
used in  operating  activities  was  $11.2  million  in 1999.  Net cash used for
operating  activities is primarily  comprised of a net loss for 1999,  partially
offset by depreciation  and amortization  expenses,  increases in other accounts
receivable and prepaid expenses. Net cash used in investing activities was $26.5
million in 1999. These investing  activities consisted primarily of purchases of
property and equipment and purchases of marketable securities.

As of December 31, 1999, we had net working capital of $88.1 million. As of that
date, we had no material commitments for capital expenditures.

We believe that the existing cash and our other financing arrangements,  provide
us with sufficient funds to finance  operations and continued growth through the
next 12 months.

Effective Corporate Tax Rates

Our tax  rate  will  reflect  a mix of the U.S.  statutory  tax rate on our U.S.
income and the  Israeli  tax rate  discussed  below.  We expect that most of our
taxable  income will be generated in Israel.  Israeli  companies  are  generally
subject to corporate tax at the rate of 36% of taxable  income.  The majority of
our income,  however,  is derived from our company's capital  investment program
with Approved  Enterprise  status under the Law for the Encouragement of Capital
Investments in three separate plans,  and is therefore  eligible for certain tax
benefits.  Pursuant to these  benefits,  we will enjoy a tax exemption on income
derived  during  the first  two years in which  such  investment  plans  produce
taxable income  (provided  that we do not distribute  such income as a dividend)
and a reduced tax rate of 10% to 25% for an  additional  period of five to eight
years  depending on the level of foreign  investment in Commtouch.  All of these
tax benefits are subject to various conditions and restrictions. There can be no
assurance  that we will  obtain  approval  for  additional  Approved  Enterprise
programs,  or  that  the  provisions  of the  law  will  not  change.  Moreover,
notwithstanding  these tax  benefits,  to the  extent  we  receive  income  from
countries  other than  Israel,  such income may be subject to  withholding  tax.
Since we have  incurred tax losses in every year through  1999,  we have not yet
used the tax benefits for which we are eligible.

Impact of Inflation and Currency Fluctuations

Most of our sales are in dollars.  However, a large portion of our costs relates
to our operations in Israel.  A substantial  portion of our operating  expenses,
primarily our research and development  expenses, is denominated in NIS. For the
purposes of our  financial  statements,  costs not  effectively  denominated  in
dollars are  translated to dollars at prevailing  exchange  rates when recorded,
and will increase if the rate of inflation in Israel exceeds the  devaluation of
the NIS as  compared  to the dollar or if the timing of such  devaluations  lags
considerably  behind  inflation.  Consequently,  we are and will be  affected by

                                                                          Page 7

<PAGE>


changes in the prevailing NIS/dollar exchange rate. We might also be affected by
the dollar exchange rate to the major European and Asian currencies,  due to the
fact that we derive revenues from customers in Europe and Asia.

The rate of inflation in Israel was 8.1% and 10.6% in 1995 and 1996. The rate of
devaluation  in Israel was 3.9% and 3.7% in 1995 and 1996.  This  imbalance  was
reversed when the rate of inflation was 7.0% and 8.6% in 1997 and 1998. The rate
of  devaluation in Israel was 8.8% and 17.6% in 1997 and 1998. In 1999, the rate
of inflation was 1.3% and the rate of devaluation in Israel was 0.2%.

Because  exchange  rates between the NIS and the dollar  fluctuate  continuously
(albeit with a historically  declining trend in the value of the NIS),  exchange
rate  fluctuations  and especially  larger  periodic  devaluations  will have an
impact on our profitability and period-to-period comparisons of our results. The
effects of foreign  currency  remeasurements  are  reported in the  Consolidated
Financial Statements in current operations.

The  representative  exchange  rate, as reported by the Bank of Israel,  was NIS
4.153 for one dollar on December  31,  1999 (NIS 4.160 on December  31, 1998 and
NIS 3.536 on December 31, 1997).


Item 13. Interest of Management in Certain Transactions.

Relationship with Go2Net

Concurrent with the closing of the initial public offering, our U.S. subsidiary,
Commtouch  Software,  Inc.,  entered into a Customized  Web-based  Email Service
Agreement with Go2Net. Under that agreement, we provide customer email services,
including  calendaring and other products and services, to end users of Go2Net's
various   properties,   which  may   include   cable   subscribers   of  Charter
Communications  and its  affiliates,  users of  services  offered  by High Speed
Access  Corp.  and any  browser,  website,  ISP or similar  service  that Go2Net
sponsors or provides content to. Under the agreement,  Commtouch  hosts,  serves
and  maintains  the email,  calendaring  and other  services  and  Go2Net  sells
advertising  to be  displayed  in the  products  and  services.  Go2Net will pay
Commtouch a share of revenues from advertising generated from email, calendaring
or other services and related upgrades provided by Commtouch for Go2Net's users.
The agreement between Commtouch and Go2Net has a three year duration, but Go2Net
has the right on each  anniversary to terminate the  agreement.  Go2Net also has
the right to terminate the  agreement if there are  technical  problems with the
products or services provided by Commtouch.  The performance  specifications set
forth in the agreement  include requiring us to maintain certain levels of email
system  availability and response time, as well as technical support to Go2Net's
email end users and to Go2Net, among other things.

In  connection  with entering into the email  services  agreement,  we issued to
Go2Net a warrant to purchase  1,136,000  ordinary shares at an exercise price of
$12.80 per share. The warrant is  non-forfeitable,  fully vested and immediately
exercisable,  and will  expire  five  years  from the date of the email  service
agreement.

Concurrent with our entering into the email services agreement,  we issued $13.3
million in  ordinary  shares to Go2Net and $6.7  million in  ordinary  shares to
Vulcan  Ventures  in a private  placement  at $14.88 per share.  Pursuant to the
share purchase agreement,  Go2Net and Vulcan Ventures have the right to name one
director  to our  board as long as they  continue  to hold at  least  25% of the
combined  number of shares  purchased by them in the private  placement  and the
shares  issuable to Go2Net upon exercise of the warrant.  Mr. Camp was appointed
to the board pursuant to that agreement. In connection with this transaction, we
agreed to pay U.S.  Bancorp Piper Jaffray an advisory fee of $550,000  under the
terms of an engagement letter agreement dated as of July 5, 1999.

We agreed to register the shares and warrant  described above promptly after the
closing of the  initial  public  offering.  The  registration  statement  became
effective on January 7, 2000.

Ordinary Share Financings

Mr.  Yiftah Atir, a director of Commtouch,  is a Managing  Director of Evergreen
Canada  Management  Ltd.,  the general  partner of Harbour  Vest-Evergreen  L.P.


                                                                          Page 8


<PAGE>


Pursuant to several Share Purchase Agreements we issued and sold ordinary shares
to  Evergreen  Canada  Israel  Investments  and  Company  Ltd.,  Yarok  Ad  Fund
Investment  Partnership  L.P. and Gmul  Investment  Company Ltd (the  "Evergreen
Investors").  These shares were subsequently converted into Series A Convertible
Preferred   Shares   and   certain  of  these   shares   were   transferred   to
HarbourVest-Evergreen L.P.

Preferred Share Financings

Mr. Yair  Safrai,  a director  of  Commtouch,  is a Managing  Partner of Concord
Ventures,  which  manages the  Concord  Funds (as  defined  below).  Pursuant to
Preferred  Share Letter  Agreements  entered into in December  1998 and February
1999,  we issued and sold (i) 41,570 Series C  Convertible  Preferred  Shares to
k.t.  Concord  Venture Fund (Cayman) L.P.,  k.t.  Concord  Venture Fund (Israel)
L.P.,  k.t.  Concord  Venture  Advisors  (Cayman) L.P. and k.t.  Concord Venture
Advisors  (Israel)  L.P.  (the  "Concord  Funds"),  for a  total  investment  of
approximately $3.0 million; (ii) 16,249 Series C Convertible Preferred Shares to
IGF for a total  investment  of  approximately  $1.2  million;  and (iii) 12,779
Series C Convertible Preferred Shares to GIF for approximately $922,000.

Option  Exercises  and  Purchases  of Shares  Subject to  Repurchase  By Certain
Officers

Gideon Mantel is the Chief  Executive  Officer and a Director of  Commtouch.  On
March  17,  1999,  Mr.  Mantel  exercised  certain  options  granted  to  him by
Commtouch.  In consideration  for the ordinary shares purchased  pursuant to the
exercise of the options,  he provided Commtouch with a full-recourse  promissory
note dated March 17, 1999 in the  original  principal  amount of  $341,272.  The
promissory note bears interest at 4.83% annually, with payments of interest only
due on March 17 of each year and with the  balance due and payable on the fourth
anniversary of the date of the promissory note. This loan was used by Mr. Mantel
to purchase  286,120 ordinary shares of Commtouch at a weighted average purchase
price of $1.19 per share. The promissory note is  collateralized  by a pledge of
the stock purchased. The outstanding principal amount of the note as of February
29, 2000 is $341,272.

Isabel Maxwell is the President of Commtouch  Software,  Inc. On March 17, 1999,
Ms.  Maxwell  exercised  certain  options  granted  to  her  by  Commtouch.   As
consideration for the ordinary shares purchased  pursuant to the exercise of the
options, she provided Commtouch with a full-recourse promissory note dated March
17, 1999 in the original principal amount of $295,858. The promissory note bears
interest at 4.83%  annually,  with  payments of interest only due on March 17 of
each year and with the balance due and payable on the fourth  anniversary of the
date of the  promissory  note.  This loan was used by Ms.  Maxwell  to  purchase
204,040 ordinary shares of Commtouch at a purchase price of $1.45 per share. The
promissory  note is  collateralized  by a pledge  of the  stock  purchased.  The
outstanding principal amount of the note as of February 29, 2000 is $295,858.

James Collins is the Chief Financial Officer of Commtouch.  On February 1, 2000,
Mr.  Collins  exercised  certain  options  granted  to  him  by  Commtouch.   As
consideration for the ordinary shares purchased  pursuant to the exercise of the
options,  Mr. Collins  provided  Commtouch with a full-recourse  promissory note
dated  February 1, 2000 in the  original  principal  amount of  $1,066,890.  The
promissory note bears interest at 6.56% annually, with payments of interest only
due on  February  1 of each year and with the  balance  due and  payable  on the
fourth anniversary of the date of the promissory note. This loan was used by Mr.
Collins to purchase  30,000  ordinary shares of Commtouch at a purchase price of
$35.36 per share. The promissory note is collateralized by a pledge of the stock
purchased.  The outstanding  principal  amount of the note as of May 31, 2000 is
$137,112.  On March 17, 1999, Mr. Collins  exercised  certain options granted to
him by Commtouch. As consideration for the ordinary shares purchased pursuant to
the exercise of the options, Mr. Collins provided Commtouch with a full-recourse
promissory  note  dated  March  17,  1999 in the  original  principal  amount of
$137,112. The promissory note bears interest at 4.83% annually, with payments of
interest  only due on March 17 of each year and with the balance due and payable
on the fourth anniversary of the date of the promissory note. This loan was used
by Mr.  Collins to purchase  94,560  ordinary  shares of Commtouch at a purchase
price of $1.45 per share. The promissory note is  collateralized  by a pledge of
the stock purchased. The outstanding principal amount of the note as of Februray
29, 2000 is $137,112.


                                                                          Page 9


<PAGE>


Loan to Dr. Nahum Sharfman and  Relationship  among  Commtouch and  DealTime.com
Ltd., Dr. Nahum Sharfman and Amir Ashkenazi

Dr. Nahum  Sharfman was a co-founder  of Commtouch  and served as a director and
Chairman of the Board of Directors of Commtouch  from  inception  until  January
1999. Dr.  Sharfman  rejoined the board of directors in April 2000. Dr. Sharfman
also served as the Chief  Executive  Officer of Commtouch  until March 31, 1998.
Dr.  Sharfman  rejoined  the Board as a director in March 2000.  On December 31,
1995, Commtouch made a loan of approximately  $58,000 to Dr. Sharfman.  The loan
plus linkage to the Israeli  Consumer Price Index was to have been repaid within
three years, or within 30 days of the termination of Dr. Sharfman's  employment,
if  earlier.  At  December  31,  1998 the  outstanding  balance of this loan was
approximately $55,000, payable in NIS.

In 1997 Dr. Sharfman established DealTime.com Ltd. (formerly known as Papricom),
together with Mr. Amir Ashkenazi, a former employee of Commtouch.

During  an  interim  period  in  which  Commtouch  and  DealTime.com  Ltd.  were
negotiating a technology  exchange  agreement,  which ultimately was not signed,
Commtouch   provided   DealTime.com  Ltd.  with  certain  services  (office  and
secretarial  services,   computers  and  other  facilities  including,   without
limitation,  all payments made for or on behalf of DealTime.com Ltd.) and access
to certain of  Commtouch's  technology.  At the  request of  DealTime.com  Ltd.,
Commtouch also entered into a Product  Distribution  Agreement (the "Stock Alert
Agreement") with News Alert Inc. DealTime.com has provided technical support and
services  to News Alert  Inc.  in  connection  with the Stock  Alert  Agreement.
Commtouch  has  entered  into  three   agreements  to  clarify  the  rights  and
obligations of Commtouch, DealTime.com, Dr. Sharfman and Mr. Amir Ashkenazi.

Under the first  agreement,  Dr.  Sharfman and Mr.  Ashkenazi  acknowledge  that
Commtouch  is the sole owner of all of their  inventions  invented  during their
employment  with Commtouch and for two years  following the termination of their
employment,  which  inventions  relate  to  Commtouch's  business  and  research
activities  as of April 1, 1998 (except in the field of  e-commerce).  They also
acknowledge  Commtouch's  rights to  inventions  that result from work that they
performed  for  Commtouch  at any  time,  or which are the  subject  matter of a
specified patent application.  Dr. Sharfman and Mr. Ashkenazi also agreed not to
compete with Commtouch's actual business and research activities as they were on
April 1, 1998 (except in the field of e-commerce), through March 31, 2000.

The second agreement, which is between Commtouch and DealTime.com Ltd., confirms
that  DealTime.com  Ltd.  shall be solely  responsible  for all  obligations  of
Commtouch under the Stock Alert Agreement.  DealTime.com  Ltd. also acknowledges
that Commtouch is the sole owner of the Multimedia  Desktop Software  Technology
that Commtouch developed and that was licensed to News Alert Inc., and Commtouch
grants DealTime.com Ltd. a royalty-free,  non-exclusive,  limited license to use
that  technology to provide  support  services under the Stock Alert  Agreement.
DealTime.com  Ltd.  also  agreed  to pay  $50,000  to  Commtouch  for all of the
services  rendered by Commtouch and for the license fees that  DealTime.com Ltd.
received under the Stock Alert Agreement,  and to divide any future revenues and
license fees received under the Stock Alert  Agreement  equally with  Commtouch.
Commtouch,  for its part, waived any claim to an equity interest in DealTime.com
Ltd.,  and  agreed  that it does  not own  intellectual  property  developed  by
DealTime.com  Ltd. other than in breach of the agreements with DealTime.com Ltd.
and Messrs. Sharfman and Ashkenazi.

Finally,  Commtouch and Dr.  Sharfman  entered into a Termination  of Employment
Agreement  requiring the repayment by Dr. Sharfman of Commtouch's loan to him by
December  31,  1999 and the  release  to Dr.  Sharfman  of funded  and  unfunded
severance  pay  within 20 days of the date of  approval  of the  Termination  of
Employment Agreement by our shareholders and containing a waiver by Dr. Sharfman
of any rights under stock options that were granted to him. Dr.  Sharfman repaid
the loan and Commtouch  released the severance  payments in the third quarter of
1999.

Loan to Amir Lev

Amir Lev has been a  director  and  executive  officer  of  Commtouch  since its
inception in 1991.  In 1999,  Mr. Lev exercised  options for Commtouch  ordinary
shares. We loaned him $364,000 so that he could make an estimated tax payment in

                                                                         Page 10

<PAGE>


connection  with this option.  This full recourse loan was linked to the Israeli
Consumer  Price Index and interest  accrued at a rate of 2% per annum.  The loan
was repaid in full on February 10, 2000.


In accordance  with the Israeli  Companies Law, the Company's Board of Directors
or its shareholders  approved each of the affiliated  transactions  described in
this Item 13.


                                                                         Page 11

<PAGE>


                         CONSENT OF INDEPENDENT AUDITORS

We consent to the  incorporation by reference in the  Registration  Statement on
Form S-8  (333-94995)  pertaining  to the 1996 CSI Stock Option  Plan,  the 1999
Section 3(i) Share Option Plan,  the 1999 Employee  Stock  Purchase Plan and the
1999 Nonemployee  Directors Stock Option Plan of Commtouch  Software Ltd. of our
report  dated  January  31,  2000 with  respect  to the  consolidated  financial
statements and schedule of Commtouch Software Ltd. included in its Annual Report
on Form 20-F for the year ended  December 31, 1999,  as amended by Amendment No.
2, filed with the Securities and Exchange Commission.

Tel-Aviv, Israel
November 28, 2000

                                                    KOST, FORER & GABBAY
                                         A member of Ernst & Young international



                                   SIGNATURES


Pursuant to the requirements of Section 12 of the Securities and Exchange Act of
1934, the registrant  certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this amendment to annual report to be signed on
its behalf by the undersigned, thereunto duly authorized.



                                          COMMTOUCH SOFTWARE LTD.


                                          By:        /s/ JAMES E. COLLINS
                                             -----------------------------------
                                                         James E. Collins
                                                     Chief Financial Officer


November 28, 2000

                                                                         Page 12