diff --git a/cmd/csd.cc b/cmd/csd.cc
index a1d4d41..627f06d 100644
--- a/cmd/csd.cc
+++ b/cmd/csd.cc
@@ -53,8 +53,7 @@
 
   FsWatcher watcher (path.c_str (),
                      bind (&Dispatcher::Did_LocalFile_AddOrModify, &dispatcher, _1),
-                     bind (&Dispatcher::Did_LocalFile_Delete,      &dispatcher, _1),
-                     dispatcher.GetFileState ());
+                     bind (&Dispatcher::Did_LocalFile_Delete,      &dispatcher, _1));
 
   return app.exec ();
 }
diff --git a/gui/fs-watcher.cc b/fs-watcher/fs-watcher.cc
similarity index 65%
rename from gui/fs-watcher.cc
rename to fs-watcher/fs-watcher.cc
index 18d004d..f646a9c 100644
--- a/gui/fs-watcher.cc
+++ b/fs-watcher/fs-watcher.cc
@@ -21,6 +21,7 @@
  */
 
 #include "fs-watcher.h"
+#include "db-helper.h"
 #include "logging.h"
 
 #include <boost/bind.hpp>
@@ -35,7 +36,6 @@
 
 FsWatcher::FsWatcher (QString dirPath,
                       LocalFile_Change_Callback onChange, LocalFile_Change_Callback onDelete,
-                      FileState *fileState,
                       QObject* parent)
   : QObject(parent)
   , m_watcher (new QFileSystemWatcher())
@@ -43,11 +43,12 @@
   , m_dirPath (dirPath)
   , m_onChange (onChange)
   , m_onDelete (onDelete)
-  , m_fileState (fileState)
 {
   _LOG_DEBUG ("Monitor dir: " << m_dirPath.toStdString ());
   // add main directory to monitor
 
+  initFileStateDb();
+
   m_watcher->addPath (m_dirPath);
 
   // register signals (callback functions)
@@ -57,17 +58,18 @@
   m_scheduler->start ();
 
   Scheduler::scheduleOneTimeTask (m_scheduler, 0,
-                                  bind (&FsWatcher::ScanDirectory_NotifyRemovals_Execute, this, m_dirPath, false/* don't remove incomplete files*/),
+                                  bind (&FsWatcher::ScanDirectory_NotifyRemovals_Execute, this, m_dirPath),
                                   "rescan-r-" + m_dirPath.toStdString ()); // only one task will be scheduled per directory
 
   Scheduler::scheduleOneTimeTask (m_scheduler, 0,
-                                  bind (&FsWatcher::ScanDirectory_NotifyUpdates_Execute, this, m_dirPath, true),
+                                  bind (&FsWatcher::ScanDirectory_NotifyUpdates_Execute, this, m_dirPath),
                                   "rescan-" +m_dirPath.toStdString ()); // only one task will be scheduled per directory
 }
 
 FsWatcher::~FsWatcher()
 {
   m_scheduler->shutdown ();
+  sqlite3_close(m_db);
 }
 
 void
@@ -79,23 +81,23 @@
   if (!filesystem::exists (filesystem::path (absPathTriggeredDir)))
     {
       Scheduler::scheduleOneTimeTask (m_scheduler, 0.5,
-                                      bind (&FsWatcher::ScanDirectory_NotifyRemovals_Execute, this, dirPath, true/* ignore incomplete file flag. the whole directory got removed*/),
+                                      bind (&FsWatcher::ScanDirectory_NotifyRemovals_Execute, this, dirPath),
                                       "r-" + dirPath.toStdString ()); // only one task will be scheduled per directory
     }
   else
     {
       // m_executor.execute (bind (&FsWatcher::ScanDirectory_NotifyUpdates_Execute, this, dirPath));
       Scheduler::scheduleOneTimeTask (m_scheduler, 0.5,
-                                      bind (&FsWatcher::ScanDirectory_NotifyUpdates_Execute, this, dirPath, false),
+                                      bind (&FsWatcher::ScanDirectory_NotifyUpdates_Execute, this, dirPath),
                                       dirPath.toStdString ()); // only one task will be scheduled per directory
 
       // m_executor.execute (bind (&FsWatcher::ScanDirectory_NotifyUpdates_Execute, this, dirPath));
       Scheduler::scheduleOneTimeTask (m_scheduler, 300,
-                                      bind (&FsWatcher::ScanDirectory_NotifyUpdates_Execute, this, dirPath, true),
+                                      bind (&FsWatcher::ScanDirectory_NotifyUpdates_Execute, this, dirPath),
                                       "rescan-"+dirPath.toStdString ()); // only one task will be scheduled per directory
 
       Scheduler::scheduleOneTimeTask (m_scheduler, 300,
-                                      bind (&FsWatcher::ScanDirectory_NotifyRemovals_Execute, this, m_dirPath, false/* don't remove incomplete files*/),
+                                      bind (&FsWatcher::ScanDirectory_NotifyRemovals_Execute, this, m_dirPath),
                                       "rescan-r-" + m_dirPath.toStdString ()); // only one task will be scheduled per directory
     }
 }
@@ -105,7 +107,7 @@
 {
   if (!filePath.startsWith (m_dirPath))
     {
-      _LOG_ERROR ("Got notification about a file not from the monitored directory");
+      _LOG_ERROR ("Got notification about a file not from the monitored directory: " << filePath.toStdString());
       return;
     }
   filesystem::path absPathTriggeredFile (filePath.toStdString ());
@@ -133,7 +135,7 @@
 }
 
 void
-FsWatcher::ScanDirectory_NotifyUpdates_Execute (QString dirPath, bool notifyCallbacks)
+FsWatcher::ScanDirectory_NotifyUpdates_Execute (QString dirPath)
 {
   _LOG_TRACE (" >> ScanDirectory_NotifyUpdates_Execute");
 
@@ -169,9 +171,11 @@
               relFile.remove (0, m_dirPath.size ());
               filesystem::path aFile (relFile.toStdString ());
 
-              if (notifyCallbacks ||
-                  !m_fileState->LookupFile (aFile.relative_path ().generic_string ()) /* file does not exist there, but exists locally: added */)
+              if (
+                  //!m_fileState->LookupFile (aFile.relative_path ().generic_string ()) /* file does not exist there, but exists locally: added */)
+                  !fileExists(aFile.relative_path().c_str())  /*file does not exist in db, but exists in fs: add */)
                 {
+                  addFile(aFile.relative_path().c_str());
                   DidFileChanged (absFilePath);
                 }
             }
@@ -185,7 +189,7 @@
 
 
 void
-FsWatcher::ScanDirectory_NotifyRemovals_Execute (QString dirPath, bool removeIncomplete)
+FsWatcher::ScanDirectory_NotifyRemovals_Execute (QString dirPath)
 {
   _LOG_DEBUG ("Triggered DirPath: " << dirPath.toStdString ());
 
@@ -194,6 +198,7 @@
 
   filesystem::path triggeredDir (dirPath.toStdString ());
 
+  /*
   FileItemsPtr files = m_fileState->LookupFilesInFolderRecursively (triggeredDir.relative_path ().generic_string ());
   for (std::list<FileItem>::iterator file = files->begin (); file != files->end (); file ++)
     {
@@ -209,8 +214,116 @@
             }
         }
     }
+    */
+
+  vector<string> files;
+  getFilesInDir(triggeredDir.relative_path().c_str(), files);
+  for (vector<string>::iterator file = files.begin(); file != files.end(); file++)
+  {
+    filesystem::path targetFile = filesystem::path (m_dirPath.toStdString()) / file->c_str();
+    if (!filesystem::exists (targetFile))
+    {
+      deleteFile(file->c_str());
+      m_onDelete(file->c_str());
+    }
+  }
 }
 
+const string INIT_DATABASE = "\
+CREATE TABLE IF NOT EXISTS                                      \n\
+    Files(                                                      \n\
+    filename      TEXT NOT NULL,                                \n\
+    PRIMARY KEY (filename)                                      \n\
+);                                                              \n\
+CREATE INDEX filename_index ON Files (filename);                \n\
+";
+
+void
+FsWatcher::initFileStateDb()
+{
+  filesystem::path dbFolder = filesystem::path (m_dirPath.toStdString().c_str()) / ".chronoshare" / "fs_watcher";
+  filesystem::create_directories(dbFolder);
+
+  int res = sqlite3_open((dbFolder / "filestate.db").c_str(), &m_db);
+  if (res != SQLITE_OK)
+  {
+    BOOST_THROW_EXCEPTION(Error::Db() << errmsg_info_str("Cannot open database: " + (dbFolder / "filestate.db").string()));
+  }
+
+  char *errmsg = 0;
+  res = sqlite3_exec(m_db, INIT_DATABASE.c_str(), NULL, NULL, &errmsg);
+  if (res != SQLITE_OK && errmsg != 0)
+  {
+      // _LOG_TRACE ("Init \"error\": " << errmsg);
+      cout << "FS-Watcher DB error: " << errmsg << endl;
+      sqlite3_free (errmsg);
+  }
+}
+
+bool
+FsWatcher::fileExists(const filesystem::path &filename)
+{
+  sqlite3_stmt *stmt;
+  sqlite3_prepare_v2(m_db, "SELECT * FROM Files WHERE filename = ?;", -1, &stmt, 0);
+  sqlite3_bind_text(stmt, 1, filename.c_str(), -1, SQLITE_STATIC);
+  bool retval = false;
+  if (sqlite3_step (stmt) == SQLITE_ROW)
+  {
+    retval = true;
+  }
+  sqlite3_finalize(stmt);
+
+  return retval;
+}
+
+void
+FsWatcher::addFile(const filesystem::path &filename)
+{
+  sqlite3_stmt *stmt;
+  sqlite3_prepare_v2(m_db, "INSERT OR IGNORE INTO Files (filename) VALUES (?);", -1, &stmt, 0);
+  sqlite3_bind_text(stmt, 1, filename.c_str(), -1, SQLITE_STATIC);
+  sqlite3_step(stmt);
+  sqlite3_finalize(stmt);
+}
+
+void
+FsWatcher::deleteFile(const filesystem::path &filename)
+{
+  sqlite3_stmt *stmt;
+  sqlite3_prepare_v2(m_db, "DELETE FROM Files WHERE filename = ?;", -1, &stmt, 0);
+  sqlite3_bind_text(stmt, 1, filename.c_str(), -1, SQLITE_STATIC);
+  sqlite3_step(stmt);
+  sqlite3_finalize(stmt);
+}
+
+void
+FsWatcher::getFilesInDir(const filesystem::path &dir, vector<string> &files)
+{
+  sqlite3_stmt *stmt;
+  sqlite3_prepare_v2(m_db, "SELECT * FROM Files WHERE filename LIKE ?;", -1, &stmt, 0);
+
+  string dirStr = dir.string();
+  ostringstream escapedDir;
+  for (string::const_iterator ch = dirStr.begin (); ch != dirStr.end (); ch ++)
+    {
+      if (*ch == '%')
+        escapedDir << "\\%";
+      else
+        escapedDir << *ch;
+    }
+  escapedDir << "/" << "%";
+  string escapedDirStr = escapedDir.str ();
+  sqlite3_bind_text (stmt, 1, escapedDirStr.c_str (), escapedDirStr.size (), SQLITE_STATIC);
+
+  while(sqlite3_step(stmt) == SQLITE_ROW)
+  {
+    string filename(reinterpret_cast<const char *>(sqlite3_column_text (stmt, 0)), sqlite3_column_bytes(stmt, 0));
+    files.push_back(filename);
+  }
+
+  sqlite3_finalize (stmt);
+
+}
 
 #if WAF
 #include "fs-watcher.moc"
diff --git a/gui/fs-watcher.h b/fs-watcher/fs-watcher.h
similarity index 81%
rename from gui/fs-watcher.h
rename to fs-watcher/fs-watcher.h
index f10850c..e3c9305 100644
--- a/gui/fs-watcher.h
+++ b/fs-watcher/fs-watcher.h
@@ -25,9 +25,9 @@
 #include <vector>
 #include <QFileSystemWatcher>
 #include <boost/filesystem.hpp>
+#include <sqlite3.h>
 
 #include "scheduler.h"
-#include "file-state.h"
 
 class FsWatcher : public QObject
 {
@@ -39,7 +39,6 @@
   // constructor
   FsWatcher (QString dirPath,
              LocalFile_Change_Callback onChange, LocalFile_Change_Callback onDelete,
-             FileState *fileState,
              QObject* parent = 0);
 
   // destructor
@@ -61,10 +60,25 @@
   // handle callback from the watcher
   // scan directory and notify callback about any file changes
   void
-  ScanDirectory_NotifyUpdates_Execute (QString dirPath, bool notifyCallbacks);
+  ScanDirectory_NotifyUpdates_Execute (QString dirPath);
 
   void
-  ScanDirectory_NotifyRemovals_Execute (QString dirPath, bool removeIncomplete);
+  ScanDirectory_NotifyRemovals_Execute (QString dirPath);
+
+  void
+  initFileStateDb();
+
+  bool
+  fileExists(const boost::filesystem::path &filename);
+
+  void
+  addFile(const boost::filesystem::path &filename);
+
+  void
+  deleteFile(const boost::filesystem::path &filename);
+
+  void
+  getFilesInDir(const boost::filesystem::path &dir, std::vector<std::string> &files);
 
 private:
   QFileSystemWatcher* m_watcher; // filesystem watcher
@@ -75,7 +89,7 @@
   LocalFile_Change_Callback m_onChange;
   LocalFile_Change_Callback m_onDelete;
 
-  FileState *m_fileState;
+  sqlite3 *m_db;
 };
 
 #endif // FILESYSTEMWATCHER_H
diff --git a/gui/chronosharegui.cpp b/gui/chronosharegui.cpp
index 5889ede..f1a5cf3 100644
--- a/gui/chronosharegui.cpp
+++ b/gui/chronosharegui.cpp
@@ -119,8 +119,7 @@
   // Alex: this **must** be here, otherwise m_dirPath will be uninitialized
   m_watcher = new FsWatcher (m_dirPath,
                              bind (&Dispatcher::Did_LocalFile_AddOrModify, m_dispatcher, _1),
-                             bind (&Dispatcher::Did_LocalFile_Delete,      m_dispatcher, _1),
-                             m_dispatcher->GetFileState ());
+                             bind (&Dispatcher::Did_LocalFile_Delete,      m_dispatcher, _1));
 }
 
 ChronoShareGui::~ChronoShareGui()
diff --git a/test/test-fs-watcher.cc b/test/test-fs-watcher.cc
new file mode 100644
index 0000000..10e7b95
--- /dev/null
+++ b/test/test-fs-watcher.cc
@@ -0,0 +1,179 @@
+#include "fs-watcher.h"
+#include <boost/make_shared.hpp>
+#include <boost/filesystem.hpp>
+#include <boost/test/unit_test.hpp>
+#include <boost/thread/thread.hpp>
+#include <boost/bind.hpp>
+#include <boost/lexical_cast.hpp>
+#include <fstream>
+#include <set>
+#include <QtGui>
+
+using namespace std;
+using namespace boost;
+namespace fs = boost::filesystem;
+
+BOOST_AUTO_TEST_SUITE(FsWatcherTests)
+
+void
+onChange(set<string> &files, const fs::path &file)
+{
+  files.insert(file.string());
+}
+
+void
+onDelete(set<string> &files, const fs::path &file)
+{
+  files.erase(file.string());
+}
+
+void create_file( const fs::path & ph, const std::string & contents )
+{
+  std::ofstream f( ph.string().c_str() );
+  if ( !f )
+  {
+    abort();
+  }
+  if ( !contents.empty() )
+  {
+    f << contents;
+  }
+}
+
+void run(fs::path dir, FsWatcher::LocalFile_Change_Callback c, FsWatcher::LocalFile_Change_Callback d)
+{
+  int x = 0;
+  QCoreApplication app (x, 0);
+  FsWatcher watcher (dir.string().c_str(), c, d);
+  app.exec();
+  sleep(100);
+}
+
+BOOST_AUTO_TEST_CASE (TestFsWatcher)
+{
+  fs::path dir = fs::absolute(fs::path("TestFsWatcher"));
+  if (fs::exists(dir))
+  {
+    fs::remove_all(dir);
+  }
+
+  fs::create_directory(dir);
+
+  set<string> files;
+
+  FsWatcher::LocalFile_Change_Callback fileChange = boost::bind(onChange,ref(files), _1);
+  FsWatcher::LocalFile_Change_Callback fileDelete = boost::bind(onDelete, ref(files), _1);
+
+  thread workThread(run, dir, fileChange, fileDelete);
+  //FsWatcher watcher (dir.string().c_str(), fileChange, fileDelete);
+
+  // ============ check create file detection ================
+  create_file(dir / "test.txt", "hello");
+  // have to at least wait 0.5 seconds
+  usleep(600000);
+  // test.txt
+  BOOST_CHECK_EQUAL(files.size(), 1);
+  BOOST_CHECK(files.find("test.txt") != files.end());
+
+  // =========== check create a bunch of files in sub dir =============
+  fs::path subdir = dir / "sub";
+  fs::create_directory(subdir);
+  for (int i = 0; i < 10; i++)
+  {
+    string filename = boost::lexical_cast<string>(i);
+    create_file(subdir / filename.c_str(), boost::lexical_cast<string>(i));
+  }
+  // have to at least wait 0.5 * 2 seconds
+  usleep(1100000);
+  // test.txt
+  // sub/0..9
+  BOOST_CHECK_EQUAL(files.size(), 11);
+  for (int i = 0; i < 10; i++)
+  {
+    string filename = boost::lexical_cast<string>(i);
+    BOOST_CHECK(files.find("sub/" +filename) != files.end());
+  }
+
+  // ============== check copy directory with files to two levels of sub dirs =================
+  fs::create_directory(dir / "sub1");
+  fs::path subdir1 = dir / "sub1" / "sub2";
+  fs::copy_directory(subdir, subdir1);
+  for (int i = 0; i < 5; i++)
+  {
+    string filename = boost::lexical_cast<string>(i);
+    fs::copy_file(subdir / filename.c_str(), subdir1 / filename.c_str());
+  }
+  // have to at least wait 0.5 * 2 seconds
+  usleep(1100000);
+  // test.txt
+  // sub/0..9
+  // sub1/sub2/0..4
+  BOOST_CHECK_EQUAL(files.size(), 16);
+  for (int i = 0; i < 5; i++)
+  {
+    string filename = boost::lexical_cast<string>(i);
+    BOOST_CHECK(files.find("sub1/sub2/" + filename) != files.end());
+  }
+
+  // =============== check remove files =========================
+  for (int i = 0; i < 7; i++)
+  {
+    string filename = boost::lexical_cast<string>(i);
+    fs::remove(subdir / filename.c_str());
+  }
+  usleep(1100000);
+  // test.txt
+  // sub/7..9
+  // sub1/sub2/0..4
+  BOOST_CHECK_EQUAL(files.size(), 9);
+  for (int i = 0; i < 10; i++)
+  {
+    string filename = boost::lexical_cast<string>(i);
+    if (i < 7)
+      BOOST_CHECK(files.find("sub/" + filename) == files.end());
+    else
+      BOOST_CHECK(files.find("sub/" + filename) != files.end());
+  }
+
+  // =================== check remove files again, remove the whole dir this time ===================
+  // before remove check
+  for (int i = 0; i < 5; i++)
+  {
+    string filename = boost::lexical_cast<string>(i);
+    BOOST_CHECK(files.find("sub1/sub2/" + filename) != files.end());
+  }
+  fs::remove_all(subdir1);
+  usleep(1100000);
+  BOOST_CHECK_EQUAL(files.size(), 4);
+  // test.txt
+  // sub/7..9
+  for (int i = 0; i < 5; i++)
+  {
+    string filename = boost::lexical_cast<string>(i);
+    BOOST_CHECK(files.find("sub1/sub2/" + filename) == files.end());
+  }
+
+  // =================== check rename files =======================
+  for (int i = 7; i < 10; i++)
+  {
+    string filename = boost::lexical_cast<string>(i);
+    fs::rename(subdir / filename.c_str(), dir / filename.c_str());
+  }
+  usleep(1100000);
+  // test.txt
+  // 7
+  // 8
+  // 9
+  // sub
+  BOOST_CHECK_EQUAL(files.size(), 4);
+  for (int i = 7; i < 10; i++)
+  {
+    string filename = boost::lexical_cast<string>(i);
+    BOOST_CHECK(files.find("sub/" + filename) == files.end());
+    BOOST_CHECK(files.find(filename) != files.end());
+  }
+
+
+}
+
+BOOST_AUTO_TEST_SUITE_END()
diff --git a/wscript b/wscript
index d514db8..3644258 100644
--- a/wscript
+++ b/wscript
@@ -99,14 +99,24 @@
         includes = "ccnx scheduler src executor",
         )
 
+    fs_watcher = bld (
+        target = "fs_watcher",
+        features = "qt4 cxx",
+        defines = "WAF",
+        source = bld.path.ant_glob(['fs-watcher/*.cc']),
+        use = "SQLITE3 LOG4CXX scheduler executor QTCORE",
+        includes = "fs-watcher scheduler executor src",
+        )
+
     # Unit tests
     if bld.env['TEST']:
       unittests = bld.program (
           target="unit-tests",
+          features = "qt4 cxx cxxprogram",
+          defines = "WAF",
           source = bld.path.ant_glob(['test/*.cc']),
-          features=['cxx', 'cxxprogram'],
-          use = 'BOOST_TEST BOOST_FILESYSTEM LOG4CXX ccnx database chronoshare',
-          includes = "ccnx scheduler src executor",
+          use = 'BOOST_TEST BOOST_FILESYSTEM LOG4CXX SQLITE3 QTCORE QTGUI ccnx database fs_watcher chronoshare',
+          includes = "ccnx scheduler src executor gui fs-watcher",
           )
 
     app_plist = '''<?xml version="1.0" encoding="UTF-8"?>
@@ -135,25 +145,25 @@
 	features = "qt4 cxx cxxprogram",
 	defines = "WAF",
 	source = bld.path.ant_glob(['gui/*.cpp', 'gui/*.cc', 'gui/*.qrc']),
-	includes = "ccnx scheduler executor gui src . ",
-	use = "BOOST BOOST_FILESYSTEM SQLITE3 QTCORE QTGUI LOG4CXX fs-watcher ccnx database chronoshare"
+	includes = "ccnx scheduler executor fs-watcher gui src . ",
+	use = "BOOST BOOST_FILESYSTEM SQLITE3 QTCORE QTGUI LOG4CXX fs_watcher ccnx database chronoshare"
 	)
 
     cmdline = bld (
         target = "csd",
 	features = "qt4 cxx cxxprogram",
 	defines = "WAF",
-	source = "cmd/csd.cc gui/fs-watcher.cc",
-	includes = "ccnx scheduler executor gui src . ",
-	use = "BOOST BOOST_FILESYSTEM SQLITE3 QTCORE QTGUI LOG4CXX fs-watcher ccnx database chronoshare"
+	source = "cmd/csd.cc",
+	includes = "ccnx scheduler executor gui fs-watcher src . ",
+	use = "BOOST BOOST_FILESYSTEM SQLITE3 QTCORE QTGUI LOG4CXX fs_watcher ccnx database chronoshare"
 	)
 
     dump_db = bld (
         target = "dump-db",
         features = "cxx cxxprogram",
 	source = "cmd/dump-db.cc",
-	includes = "ccnx scheduler executor gui src . ",
-	use = "BOOST BOOST_FILESYSTEM SQLITE3 QTCORE LOG4CXX fs-watcher ccnx database chronoshare"
+	includes = "ccnx scheduler executor gui fs-watcher src . ",
+	use = "BOOST BOOST_FILESYSTEM SQLITE3 QTCORE LOG4CXX fs_watcher ccnx database chronoshare"
         )