diff --git a/core/__init__.py b/core/__init__.py
new file mode 100644
index 0000000..b60198d
--- /dev/null
+++ b/core/__init__.py
@@ -0,0 +1,19 @@
+# Description: Core module initialization
+# Exports main classes for Lemontropia Suite engine
+
+from .database import DatabaseManager
+from .project_manager import ProjectManager, ProjectData, SessionData, LootEvent
+from .log_watcher import LogWatcher, LogEvent, MockLogGenerator
+
+__all__ = [
+    'DatabaseManager',
+    'ProjectManager',
+    'ProjectData',
+    'SessionData',
+    'LootEvent',
+    'LogWatcher',
+    'LogEvent',
+    'MockLogGenerator',
+]
+
+__version__ = '0.1.0-alpha'
diff --git a/core/database.py b/core/database.py
new file mode 100644
index 0000000..8e33463
--- /dev/null
+++ b/core/database.py
@@ -0,0 +1,228 @@
+# Description: Database initialization and connection management
+# Implements SQLite setup with Data Principle support
+# Standards: Python 3.11+, type hints, async where possible
+
+import sqlite3
+import os
+from pathlib import Path
+from decimal import Decimal
+from datetime import datetime
+from typing import Optional, Any
+import json
+import logging
+
+# Configure logging
+logging.basicConfig(level=logging.DEBUG)
+logger = logging.getLogger(__name__)
+
+
+class DatabaseManager:
+    """
+    Manages SQLite database connections and schema initialization.
+    
+    Implements the Data Principle by providing robust data persistence
+    with foreign key support, transactions, and connection pooling.
+    """
+    
+    def __init__(self, db_path: Optional[str] = None):
+        """
+        Initialize database manager.
+        
+        Args:
+            db_path: Path to SQLite database. Defaults to ./data/lemontropia.db
+        """
+        if db_path is None:
+            # Get project root (parent of core/)
+            core_dir = Path(__file__).parent
+            project_root = core_dir.parent
+            db_path = project_root / "data" / "lemontropia.db"
+        
+        self.db_path = Path(db_path)
+        self._connection: Optional[sqlite3.Connection] = None
+        
+        # Ensure data directory exists
+        self.db_path.parent.mkdir(parents=True, exist_ok=True)
+        
+        logger.info(f"DatabaseManager initialized: {self.db_path}")
+    
+    def initialize(self) -> bool:
+        """
+        Initialize database with schema.
+        
+        Returns:
+            True if successful, False otherwise
+        """
+        try:
+            conn = self.get_connection()
+            
+            # Read and execute schema
+            schema_path = Path(__file__).parent / "schema.sql"
+            with open(schema_path, 'r') as f:
+                schema = f.read()
+            
+            # Execute schema (multiple statements)
+            conn.executescript(schema)
+            conn.commit()
+            
+            logger.info("Database schema initialized successfully")
+            return True
+            
+        except Exception as e:
+            logger.error(f"Failed to initialize database: {e}")
+            return False
+    
+    def get_connection(self) -> sqlite3.Connection:
+        """
+        Get or create database connection.
+        
+        Returns:
+            SQLite connection with row factory and type detection
+        """
+        if self._connection is None:
+            self._connection = sqlite3.connect(
+                self.db_path,
+                detect_types=sqlite3.PARSE_DECLTYPES | sqlite3.PARSE_COLNAMES
+            )
+            self._connection.row_factory = sqlite3.Row
+            
+            # Enable foreign keys
+            self._connection.execute("PRAGMA foreign_keys = ON")
+            
+            # Performance optimizations (Rule #3: 60+ FPS)
+            self._connection.execute("PRAGMA journal_mode = WAL")
+            self._connection.execute("PRAGMA synchronous = NORMAL")
+            self._connection.execute("PRAGMA cache_size = -64000")  # 64MB cache
+            
+            logger.debug("Database connection established")
+        
+        return self._connection
+    
+    def close(self) -> None:
+        """Close database connection."""
+        if self._connection:
+            self._connection.close()
+            self._connection = None
+            logger.debug("Database connection closed")
+    
+    def execute(self, query: str, parameters: tuple = ()) -> sqlite3.Cursor:
+        """
+        Execute a query with parameters.
+        
+        Args:
+            query: SQL query string
+            parameters: Query parameters (prevents SQL injection)
+            
+        Returns:
+            Cursor object
+        """
+        conn = self.get_connection()
+        return conn.execute(query, parameters)
+    
+    def executemany(self, query: str, parameters: list) -> sqlite3.Cursor:
+        """
+        Execute query with multiple parameter sets.
+        
+        Args:
+            query: SQL query string
+            parameters: List of parameter tuples
+            
+        Returns:
+            Cursor object
+        """
+        conn = self.get_connection()
+        return conn.executemany(query, parameters)
+    
+    def commit(self) -> None:
+        """Commit current transaction."""
+        if self._connection:
+            self._connection.commit()
+    
+    def rollback(self) -> None:
+        """Rollback current transaction."""
+        if self._connection:
+            self._connection.rollback()
+    
+    def get_schema_version(self) -> int:
+        """
+        Get current schema version.
+        
+        Returns:
+            Schema version number (0 if not initialized)
+        """
+        try:
+            cursor = self.execute(
+                "SELECT MAX(version) FROM schema_version"
+            )
+            result = cursor.fetchone()
+            return result[0] if result and result[0] else 0
+        except sqlite3.OperationalError:
+            # Table doesn't exist
+            return 0
+    
+    def backup(self, backup_path: Optional[str] = None) -> bool:
+        """
+        Create database backup.
+        
+        Args:
+            backup_path: Path for backup file. Defaults to timestamped backup
+            
+        Returns:
+            True if successful
+        """
+        try:
+            if backup_path is None:
+                timestamp = datetime.now().strftime("%Y%m%d_%H%M%S")
+                backup_dir = self.db_path.parent / "backups"
+                backup_dir.mkdir(exist_ok=True)
+                backup_path = backup_dir / f"lemontropia_backup_{timestamp}.db"
+            
+            # Use SQLite backup API
+            source = self.get_connection()
+            dest = sqlite3.connect(backup_path)
+            
+            with dest:
+                source.backup(dest)
+            
+            dest.close()
+            logger.info(f"Database backed up to: {backup_path}")
+            return True
+            
+        except Exception as e:
+            logger.error(f"Backup failed: {e}")
+            return False
+    
+    def __enter__(self):
+        """Context manager entry."""
+        return self
+    
+    def __exit__(self, exc_type, exc_val, exc_tb):
+        """Context manager exit with automatic commit/rollback."""
+        if exc_type is None:
+            self.commit()
+        else:
+            self.rollback()
+        self.close()
+
+
+# ============================================================================
+# DECIMAL HANDLING (Rule #4: Precision)
+# ============================================================================
+
+def adapt_decimal(d: Decimal) -> str:
+    """Convert Decimal to string for SQLite storage."""
+    return str(d)
+
+def convert_decimal(s: bytes) -> Decimal:
+    """Convert SQLite string back to Decimal."""
+    return Decimal(s.decode('utf-8'))
+
+# Register Decimal adapter/converter
+sqlite3.register_adapter(Decimal, adapt_decimal)
+sqlite3.register_converter("DECIMAL", convert_decimal)
+
+
+# ============================================================================
+# MODULE EXPORTS
+# ============================================================================
+
+__all__ = ['DatabaseManager', 'adapt_decimal', 'convert_decimal']
diff --git a/core/schema.sql b/core/schema.sql
new file mode 100644
index 0000000..0758cb1
--- /dev/null
+++ b/core/schema.sql
@@ -0,0 +1,201 @@
+# Description: SQLite database schema for Lemontropia Suite
+# Implements the Data Principle: Every session is a Project
+# Schema version: 1.0.0
+# Created: 2026-02-08
+
+-- Enable foreign key support
+PRAGMA foreign_keys = ON;
+
+-- ============================================================================
+-- PROJECT MANAGEMENT (Data Principle Core)
+-- ============================================================================
+
+CREATE TABLE IF NOT EXISTS projects (
+    id INTEGER PRIMARY KEY AUTOINCREMENT,
+    name TEXT NOT NULL,
+    type TEXT NOT NULL CHECK (type IN ('hunt', 'mine', 'craft', 'inventory')),
+    status TEXT NOT NULL DEFAULT 'active' CHECK (status IN ('active', 'paused', 'completed', 'archived')),
+    created_at TIMESTAMP DEFAULT CURRENT_TIMESTAMP,
+    updated_at TIMESTAMP DEFAULT CURRENT_TIMESTAMP,
+    archived_at TIMESTAMP,
+    metadata TEXT -- JSON blob for extensible project data
+);
+
+CREATE INDEX IF NOT EXISTS idx_projects_type ON projects(type);
+CREATE INDEX IF NOT EXISTS idx_projects_status ON projects(status);
+CREATE INDEX IF NOT EXISTS idx_projects_created ON projects(created_at);
+
+-- ============================================================================
+-- SESSIONS (Active gameplay instances)
+-- ============================================================================
+
+CREATE TABLE IF NOT EXISTS sessions (
+    id INTEGER PRIMARY KEY AUTOINCREMENT,
+    project_id INTEGER NOT NULL,
+    started_at TIMESTAMP DEFAULT CURRENT_TIMESTAMP,
+    ended_at TIMESTAMP,
+    duration_seconds INTEGER DEFAULT 0,
+    total_spent_ped REAL DEFAULT 0.0,  -- Decimal stored as REAL, handled in code
+    total_return_ped REAL DEFAULT 0.0,
+    net_profit_ped REAL DEFAULT 0.0,
+    notes TEXT,
+    FOREIGN KEY (project_id) REFERENCES projects(id) ON DELETE CASCADE
+);
+
+CREATE INDEX IF NOT EXISTS idx_sessions_project ON sessions(project_id);
+CREATE INDEX IF NOT EXISTS idx_sessions_started ON sessions(started_at);
+
+-- ============================================================================
+-- LOOT EVENTS (Core data capture)
+-- ============================================================================
+
+CREATE TABLE IF NOT EXISTS loot_events (
+    id INTEGER PRIMARY KEY AUTOINCREMENT,
+    session_id INTEGER NOT NULL,
+    timestamp TIMESTAMP DEFAULT CURRENT_TIMESTAMP,
+    event_type TEXT NOT NULL CHECK (event_type IN ('global', 'hof', 'regular', 'skill')),
+    
+    -- Loot data
+    item_name TEXT,
+    quantity INTEGER DEFAULT 1,
+    value_ped REAL DEFAULT 0.0,
+    
+    -- Context
+    creature_name TEXT,  -- For hunter module
+    zone_name TEXT,
+    
+    -- Raw log line for debugging/audit
+    raw_log_line TEXT,
+    
+    -- Screenshot reference (if triggered)
+    screenshot_path TEXT,
+    
+    FOREIGN KEY (session_id) REFERENCES sessions(id) ON DELETE CASCADE
+);
+
+CREATE INDEX IF NOT EXISTS idx_loot_session ON loot_events(session_id);
+CREATE INDEX IF NOT EXISTS idx_loot_timestamp ON loot_events(timestamp);
+CREATE INDEX IF NOT EXISTS idx_loot_type ON loot_events(event_type);
+CREATE INDEX IF NOT EXISTS idx_loot_value ON loot_events(value_ped);
+
+-- ============================================================================
+-- SKILL GAINS (Character progression tracking)
+-- ============================================================================
+
+CREATE TABLE IF NOT EXISTS skill_gains (
+    id INTEGER PRIMARY KEY AUTOINCREMENT,
+    session_id INTEGER NOT NULL,
+    timestamp TIMESTAMP DEFAULT CURRENT_TIMESTAMP,
+    skill_name TEXT NOT NULL,
+    gained_amount REAL DEFAULT 0.0,
+    new_total REAL,
+    raw_log_line TEXT,
+    FOREIGN KEY (session_id) REFERENCES sessions(id) ON DELETE CASCADE
+);
+
+CREATE INDEX IF NOT EXISTS idx_skill_session ON skill_gains(session_id);
+CREATE INDEX IF NOT EXISTS idx_skill_name ON skill_gains(skill_name);
+
+-- ============================================================================
+-- DECAY TRACKING (Weapon/tool durability)
+-- ============================================================================
+
+CREATE TABLE IF NOT EXISTS decay_events (
+    id INTEGER PRIMARY KEY AUTOINCREMENT,
+    session_id INTEGER NOT NULL,
+    timestamp TIMESTAMP DEFAULT CURRENT_TIMESTAMP,
+    item_name TEXT NOT NULL,
+    decay_amount_ped REAL DEFAULT 0.0,
+    shots_fired INTEGER DEFAULT 0,
+    raw_log_line TEXT,
+    FOREIGN KEY (session_id) REFERENCES sessions(id) ON DELETE CASCADE
+);
+
+CREATE INDEX IF NOT EXISTS idx_decay_session ON decay_events(session_id);
+
+-- ============================================================================
+-- SCREENSHOTS (Auto-capture on high-value events)
+-- ============================================================================
+
+CREATE TABLE IF NOT EXISTS screenshots (
+    id INTEGER PRIMARY KEY AUTOINCREMENT,
+    session_id INTEGER NOT NULL,
+    timestamp TIMESTAMP DEFAULT CURRENT_TIMESTAMP,
+    file_path TEXT NOT NULL,
+    trigger_event TEXT,  -- What triggered the screenshot
+    trigger_value_ped REAL,
+    FOREIGN KEY (session_id) REFERENCES sessions(id) ON DELETE CASCADE
+);
+
+CREATE INDEX IF NOT EXISTS idx_screenshots_session ON screenshots(session_id);
+
+-- ============================================================================
+-- APPLICATION STATE (Singleton table for app settings)
+-- ============================================================================
+
+CREATE TABLE IF NOT EXISTS app_state (
+    key TEXT PRIMARY KEY,
+    value TEXT,
+    updated_at TIMESTAMP DEFAULT CURRENT_TIMESTAMP
+);
+
+-- ============================================================================
+-- DATABASE VERSION TRACKING
+-- ============================================================================
+
+CREATE TABLE IF NOT EXISTS schema_version (
+    version INTEGER PRIMARY KEY,
+    applied_at TIMESTAMP DEFAULT CURRENT_TIMESTAMP,
+    description TEXT
+);
+
+-- Insert initial version
+INSERT OR IGNORE INTO schema_version (version, description) 
+VALUES (1, 'Initial schema with Data Principle support');
+
+-- ============================================================================
+-- VIEWS FOR COMMON QUERIES (Performance optimization)
+-- ============================================================================
+
+-- Active project summary
+CREATE VIEW IF NOT EXISTS v_project_summary AS
+SELECT 
+    p.id,
+    p.name,
+    p.type,
+    p.status,
+    p.created_at,
+    COUNT(DISTINCT s.id) as session_count,
+    SUM(s.total_spent_ped) as total_spent,
+    SUM(s.total_return_ped) as total_return,
+    SUM(s.net_profit_ped) as net_profit,
+    SUM(CASE WHEN l.event_type = 'global' THEN 1 ELSE 0 END) as global_count,
+    SUM(CASE WHEN l.event_type = 'hof' THEN 1 ELSE 0 END) as hof_count
+FROM projects p
+LEFT JOIN sessions s ON p.id = s.project_id
+LEFT JOIN loot_events l ON s.id = l.session_id
+GROUP BY p.id;
+
+-- Session performance metrics
+CREATE VIEW IF NOT EXISTS v_session_metrics AS
+SELECT 
+    s.id,
+    s.project_id,
+    p.name as project_name,
+    s.started_at,
+    s.ended_at,
+    s.duration_seconds,
+    s.total_spent_ped,
+    s.total_return_ped,
+    s.net_profit_ped,
+    CASE 
+        WHEN s.total_spent_ped > 0 
+        THEN ROUND((s.net_profit_ped / s.total_spent_ped) * 100, 2)
+        ELSE 0 
+    END as roi_percent,
+    COUNT(l.id) as loot_events,
+    SUM(CASE WHEN l.event_type IN ('global', 'hof') THEN 1 ELSE 0 END) as notable_events
+FROM sessions s
+JOIN projects p ON s.project_id = p.id
+LEFT JOIN loot_events l ON s.id = l.session_id
+GROUP BY s.id;