**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-Q**





**x** **QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**





For
      the
      quarterly period ended: July 31, 2008





or





**o** **TRANSITION
      REPORT PURSUANT TO SECTION 13 0R 15(D) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**





For
      the
      transition period from _____________ to ____________





*Commission
      File Number:* **000-51308**


**CHATSWORTH
      DATA SOLUTIONS, INC.**


**(** (Exact
      name of small business issuer as specified in its charter)





**Nevada**
            
            **98-0427221**(State
                or Other jurisdiction of
              Incorporation
                or organization)
            
            (IRS
                Employer
              Identification
                No.)





321
                South Boston Ave. Suite 218, Tulsa, OK
            
            74103(Address
                of Principal Executive Offices)
            
            (Zip
                Code)





(918)
      645-3701


(Issuer's
      telephone number including area code)





Check
      whether the issuer (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 o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
       See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large
                accelerated filero
            Accelerated
                fileroNNon-accelerated
                filero(Do not check if a smaller reporting company)
            Smaller
                reporting companyx





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act)





Yes o No x





State
      the
      number of shares outstanding of each of the issuer's classes of common stock,
      as
      of the latest practicable date.





As
      of
      August 31, 2008, the issuer had 51,296,000 shares of common stock, $0.00001
      par
      value, issued and outstanding and 5,600,000 shares of common stock, $0.00001
      par
      value, subscribed but not yet issued.





**CHATSWORTH
      DATA SOLUTIONS, INC.**





INDEX
      TO
      FORM 10-Q





PAGEPART
                I
            
            FINANCIAL
                INFORMATION
            
            3Item
                1.
            
            Condensed
                Consolidated Financial Statements
            
            3Condensed
                consolidated balance sheets as of July 31, 2008   (unaudited)
                and January 31, 2008
            
            3Condensed
                consolidated statements of operationsfor
                the three and six  months ended July 31, 2008 and 2007-
                unaudited
            
            4Condensed
                consolidated statement of changes in stockholders'   equity for
                the six months ended July 31, 2008 - unaudited
            
            5Condensed
                consolidated statements of cash flows for the six   months ended
                July 31, 2008 and 2007 – unaudited
            
            6Notes
                to condensed consolidated financial statements - unaudited
            
            7Item
                2.
            
            Management's
                Discussion and Analysis or Plan of Operations
            
            15Item
                3.
            
            Quantitative
                and Qualitative Disclosure About Market Risk
            
            21Item
                4.
            
            Controls
                and Procedures
            
            21PART
                II
            
            OTHER
                INFORMATION
            
            22Item
                1.
            
            Legal
                Proceedings
            
            22Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            22Item
                3.
            
            Defaults
                Upon Senior Securities
            
            23Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            23Item
                5.
            
            Other
                Information
            
            23Item
                6.
            
            Exhibits
            
            23SIGNATURES
            
            24




2





CHATSWORTH
      DATA SOLUTIONS, INC.





CONDENSED
      CONSOLIDATED BALANCE SHEETS




July
      31,
      2008 (unaudited) and January 31, 2008




July
                31,
              2008
              (Unaudited)
            
            January
                31,
              2008**ASSETS**Current
                AssetsCash
            
            $
            8,230
            
            $
            72,329Accounts
                receivable, less allowance for doubtful accounts of $16,193 and
                $16,367
            
            
            594,059
            
            
            1,377,486Inventories
            
            
            1,835,666
            
            
            1,550,974Prepaid
                expenses
            
            
            33,521
            
            
            40,4572,471,476
            
            
            3,041,246Total
                current assetsProperty
                and equipment, net
            
            
            317,164
            
            
            377,061Goodwill
            
            
            3,926,643
            
            
            3,926,643Intangible
                assets, net
            
            
            1,142,120
            
            
            1,639,640Other
                assets
            
            
            79,144
            
            
            24,734Total
                assets
            
            $
            7,936,547
            
            $
            9,009,324**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                LiabilitiesAccounts
                payable
            
            $
            1,181,278
            
            $
            1,181,750Accrued
                liabilities
            
            
            242,065
            
            
            285,955Line
                of credit
            
            
            1,049,892
            
            
            1,797,593Current
                portion of notes payable
            
            
            1,720,000
            
            
            1,000,000Total
                current liabilities
            
            
            4,193,235
            
            
            4,265,298Notes
                payable, long term
            
            
            -
            
            
            500,000Notes
                payable - registration penalty
            
            
            754,600
            
            
            754,600Total
                liabilities
            
            
            4,947,835
            
            
            5,519,898Commitments
                and contingenciesStockholders'
                Equity:Preferred stock,
                par value $0.00001 per share, 5,000,000 shares authorized, none
                issued and outstanding
            
            
            -
            
            
            -Common
                stock, par value $0.00001 per share, 100,000,000 shares authorized,
                56,896,000 and 31,250,000 shares issued and outstanding at July 31,
                2008
                and January 31, 2008, respectively
            
            
            568
            
            
            312Additional
                paid-in capital
            
            
            8,380,257
            
            
            6,493,184Accumulated
                deficit
            
            
            (5,392,113
            )
            
            (3,004,070
            )Total
                stockholders' equity
            
            
            2,988,712
            
            
            3,489,426Total
                liabilities and stockholders' equity
            
            $
            7,936,547
            
            $
            9,009,324




The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.


3


CHATSWORTH
      DATA SOLUTIONS, INC.





CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)





Three Months Ended July 31,
            
            Six Months Ended July 31,2008
            
            2007
            
            2008
            
            2007Net
                sales
            
            $
            1,256,960
            
            $
            2,142,320
            
            $
            2,612,819
            
            $
            4,361,073Cost
                of sales
            
            
            884,127
            
            
            1,221,607
            
            
            1,825,174
            
            
            2,714,935Gross
                profit
            
            
            372,833
            
            
            920,713
            
            
            787,645
            
            
            1,646,138Operating
                expenses:General
                and administrative
            
            
            912,150
            
            
            1,114,740
            
            
            2,429,185
            
            
            2,189,633Depreciation
            
            
            41,971
            
            
            31,472
            
            
            81,401
            
            
            57,667Amortization
                of intangible assets
            
            
            248,760
            
            
            248,760
            
            
            497,520
            
            
            497,520Loss
                from operations
            
            
            (830,048
            )
            
            (474,259
            )
            
            (2,220,461
            )
            
            (1,098,682
            )Other
                income (expense)Interest
                expense
            
            
            (94,707
            )
            
            (46,144
            )
            
            (167,582
            )
            
            (79,102
            )Registration
                penalty
            
            
            -
            
            
            (110,000
            )
            
            -
            
            
            (110,000
            )Other
                income (expense), net
            
            
            (94,707
            )
            
            (156,144
            )
            
            (167,582
            
            
            (189,102
            )Loss
                before income taxes
            
            
            (924,755
            )
            
            (630,403
            )
            
            (2,388,043
            )
            
            (1,287,784
            )Income
                tax benefit
            
            
            -
            
            
            (250,900
            )
            
            -
            
            
            (512,538
            )Net
                loss
            
            $
            (924,755
            )
            $
            (379,503
            )
            $
            (2,388,043
            )
            $
            (775,246
            )Net
                loss per share - basic and diluted
            
            $
            (0.02
            )
            $
            (0.01
            )
            $
            (0.05
            )
            $
            (0.02
            )Weighted
                average shares outstanding
            
            
            54,044,130
            
            
            31,250,000
            
            
            46,032,418
            
            
            31,250,000




See
      accompanying notes to condensed consolidated financial statements


4


CHATSWORTH
      DATA SOLUTIONS, INC.





CONDENSED
      CONSOLIDATED


STATEMENT
      OF CHANGES IN STOCKHOLDERS' EQUITY





For
      the
      six months ended July 31, 2008


(unaudited)





Common
                StockNumber
                of Shares
            
            Amount
            
            Additional
              Paid-in
              Capital
            
            Accumulated
              Deficit
            
            TotalBalance,
                February 1, 2008
            
            
            31,250,000
            
            $
            312
            
            $
            6,493,184
            
            $
            (3,004,070
            )
            $
            3,489,426Sale
                of common stock
            
            
            25,646,000
            
            
            256
            
            
            1,282,044
            
            
            -
            
            
            1,282,300Stock
                based employee compensation
            
            
            -
            
            
            -
            
            
            522,990
            
            
            -
            
            
            522,990Fair
                value of vested options
            
            
            -
            
            
            -
            
            
            82,039
            
            
            -
            
            
            82,039Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,388,043
            )
            
            (2,388,043
            )Balance,
                July 31, 2008 (unaudited)
            
            
            56,896,000
            
            $
            568
            
            $
            8,380,257
            
            $
            (5,392,113
            )
            $
            2,988,712





See
      accompanying notes to condensed consolidated financial statements


5


CHATSWORTH
      DATA SOLUTIONS, INC.





CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)





Six
                Months Ended July 31,2008
            
            2007**Cash
                Flows from Operating Activities**Net
                loss for the period
            
            $
            (2,388,043
            )
            $
            (775,246
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            578,921
            
            
            555,187Stock
                based employee compensation
            
            
            522,990
            
            
            -Fair
                value of vested options
            
            
            82,039
            
            
            126,652Income
                tax benefit
            
            
            -
            
            
            (512,538
            )Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            783,427
            
            
            (490,368
            )Inventories
            
            
            (284,692
            )
            
            (351,803
            )Other
                assets
            
            
            (54,410
            )
            
            7,869Prepaid
                expenses
            
            
            6,936
            
            
            10,705Accounts
                payable
            
            
            (472
            )
            
            750,679Accrued
                liabilities
            
            
            (43,890
            )
            
            (412,931
            )Accrued
                registration penalty payment
            
            
            -
            
            
            110,000Net
                cash used in operating activities
            
            
            (797,194
            )
            
            (981,794
            )**Cash
                Flows from Investing Activities**Purchase
                of property and equipment
            
            
            (21,504
            )
            
            (177,150
            )Net
                cash used in investing activities
            
            
            (21,504
            )
            
            (177,150
            )**Cash
                Flows from Financing Activities**Proceeds
                from issuance of common stock
            
            
            1,282,300
            
            
            -Proceeds
                from Note payable – MKM Opportunity Master Fund Ltd.
            
            
            220,000
            
            
            -Net
                borrowings (repayments) on line of credit
            
            
            (747,701
            )
            
            1,077,593Net
                cash provided by financing activities
            
            
            754,599
            
            
            1,077,593Change
                in cash
            
            
            (64,099
            )
            
            (81,351
            )Cash
                and cash equivalents, beginning of period
            
            
            72,329
            
            
            341,676Cash
                and cash equivalents, end of period
            
            $
            8,230
            
            $
            260,325**Supplemental
                cash flow information**Cash
                paid for income taxes
            
            $
            -
            
            $
            -Cash
                paid for interest
            
            $
            124,888
            
            $
            77,940




See
      accompanying notes to condensed consolidated financial
      statements


6




CHATSWORTH
      DATA SOLUTIONS, INC.





NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





As
      of
      July 31, 2008 and for the three and six months ended July 31, 2008 and 2007


(unaudited)





**NOTE
      1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES**




*Description
      of business*





Chatsworth
      Data Solutions, Inc. (the "Company"), through its wholly owned subsidiary
      Chatsworth Data Corporation ("CDC"), manufactures equipment for optical readers
      and read heads, impact recorders and indicators, and cable test equipment.
      The
      Company's fiscal year-end is January 31.




*Liquidity
      and capital resources*





As
      of
      July 31, 2008, the Company had cash on hand of $8,230 and had no availability
      under its financing arrangements. During the six months ended July 31, 2008,
      the
      Company incurred a net loss of $2,388,043 and used cash in operations of
      $797,194. Additionally, the Company did not make the scheduled July 20,
      2008 principal payment for $220,000 on its note payable to MKM Opportunity
      Fund
      (“MKM”, see Note 2). Based on second quarter operating results resulting from
      slower than anticipated sales and the Company’s assessment of the business
      environment for the balance of 2008, management does not believe that the
      Company will achieve positive cash flow until the fourth quarter of 2008 or
      early 2009.





Management
      believes that its existing cash balance at July 31, 2008 will not be sufficient
      to meet its obligations under the note payable to MKM, obligations under notes
      payable to predecessor shareholders (see Note 2), and its working capital,
      capital expenditure and investment requirements for the next 12 months. Without
      additional borrowings, the Company may not be able to make its interest payments
      of $25,000 due September 30, 2008 and its principal payments of $500,000, due
      October 31, 2008, respectively, on notes payables to predecessor shareholders
      (see Note 2).





During
      the six months ended July 31, 2008, the Company (or CDC) has issued common
      stock
      for proceeds of $1,282,300 (see Note 5), and received $220,000 from the issuance
      of the note payable to MKM (see Note 2). In addition, on July 29, 2008, the
      Board of Directors approved a reduction of approximately 20% of the CDC’s
      workforce, effective July 31, 2008, as part of an overall plan to reduce
      operating costs at CDC.





The
      Company may require additional funds and may seek to raise such funds though
      public and private financings or from other sources. There is no assurance
      that
      additional financing will be available at all or that, if available, such
      financing will be obtainable on terms favorable to the Company or that any
      additional financing will not be dilutive. The accompanying condensed
      consolidated financial statements have been prepared assuming the Company will
      continue as a going concern which assumes the realization of assets and
      settlement of liabilities in the normal course of business for a reasonable
      period of time. As of July 31, 2008, the conditions discussed above have created
      uncertainty about the Company's ability to continue as a going
      concern.





*Basis
      of presentation*





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with generally accepted accounting principles in the
      United States of America for interim financial information and pursuant to
      the
      rules and regulations of the United States Securities and Exchange Commission
      (SEC). Accordingly, they do not include all of 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 adjustments) considered necessary for a fair presentation have been
      included. These financial statements should be read in conjunction with the Company's
      Annual Report on Form 10-KSB for the fiscal year ended January 31, 2008,
      filed with the SEC. The results of operations for interim periods are not
      necessarily indicative of the results expected for a full year or for any future
      period. Certain prior year's amounts have been reclassified to conform to the
      current period presentation.





7




*Use
      of estimates*





The
      preparation of financial statements in conformity with U.S. generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      Actual results could differ from those estimates.





*Revenue
      recognition*





The
      Company recognizes revenue when there is persuasive evidence that an arrangement
      exists, delivery of the product has occurred and title has passed, the selling
      price is both fixed and determinable, and collectibility is reasonably assured,
      all of which generally occurs upon shipment of the Company’s product or delivery
      of the product to the destination specified by the customer.





*Basic
      and diluted net income (loss) per share*





Basic
      earnings (loss) per share are computed by dividing net income (loss) available
      to common shareholders (numerator) by the weighted average number of shares
      outstanding (denominator) during the period. Diluted earnings per share reflects
      the potential dilution that could occur if options or other securities or
      contracts entitling the holder to acquire shares of common stock were exercised
      or converted, resulting in the issuance of additional shares of common stock
      that would then share in earnings. However, diluted loss per share does not
      consider such dilution as its effect would be anti-dilutive. In computing
      basic and diluted earnings (loss) per share, the Company considers shares to
      be
      issued as outstanding from the date the shares were sold.





At
      July
      31, 2008 potentially dilutive securities entitling the holder thereof to acquire
      shares of common stock are summarized as follows:




Options
                to purchase common stock
            
            
            7,787,500Warrants
                to purchase common stock
            
            
            12,103,000





For
      the
      three and six months ended July 31, 2008, these options and warrants were not
      included in the computation of diluted loss per share as their effects are
      anti-dilutive.





*Stock
      compensation costs*





The
      Company periodically issues stock options and warrants to employees and
      non-employees in non-capital raising transactions for services and for financing
      costs. The Company adopted Statement of Financial Accounting Standards (SFAS)
      No. 123R effective February 1, 2006, and is using the modified prospective
      method in which compensation cost is recognized beginning with the effective
      date (a) based on the requirements of SFAS No. 123R for all share-based payments
      granted after the effective date and (b) based on the requirements of SFAS
      No.
      123R for all awards granted to employees prior to the effective date of SFAS
      No.
      123R that remained unvested on the effective date.





The
      Company accounts for stock option and warrant grants issued and vesting to
      non-employees in accordance with EITF No. 96-18: "Accounting for Equity
      Instruments that are Issued to Other Than Employees for Acquiring, or in
      Conjunction with Selling, Goods or Services" and EITF No.
      00-18:


8


"Accounting
      Recognition for Certain Transactions involving Equity Instruments Granted to
      Other Than Employees" whereas the value of the stock compensation is based
      upon
      the measurement date as determined at either a) the date at which a performance
      commitment is reached, or b) at the date at which the necessary performance
      to
      earn the equity instruments is complete.





*Registration
      payment arrangements*





The
      Company accounts for registration payment arrangements under Financial
      Accounting Standards board (FASB) Staff Position EITF 00-19-2, Accounting for
      Registration Payment Arrangements ("FSP EITF 00-19-2"). FSP EITF 00-19-2
      specifies that the contingent obligation to make future payments under a
      registration payment arrangement should be separately recognized and measured
      in
      accordance with SFAS No. 5, Accounting for Contingencies. FSP EITF 00-19-2
      was
      issued in December, 2006. Early adoption of FSP EITF 00-19-2 is permitted and
      the Company adopted FSP EITF 00-19-2 effective November 1, 2006.





*Financial
      assets and liabilities measured at fair value*





Effective
      February 1, 2008, the Company adopted Statement of Financial Accounting
      Standards (SFAS) No. 157, Fair Value Measurements. This Statement defines
      fair value for certain financial and nonfinancial assets and liabilities that
      are recorded at fair value, establishes a framework for measuring fair value,
      and expands disclosures about fair value measurements. This guidance applies
      to
      other accounting pronouncements that require or permit fair value measurements.
      On February 12, 2008, the FASB finalized FASB Staff Position (FSP) No.
      157-2, Effective Date of FASB Statement No. 157. This Staff Position delays
      the effective date of SFAS No. 157 for nonfinancial assets and liabilities
      to fiscal years beginning after November 15, 2008 and interim periods within
      those fiscal years, except for those items that are recognized or disclosed
      at
      fair value in the financial statements on a recurring basis (at least annually).
      The adoption of SFAS No. 157 had no effect on the Company's consolidated
      financial position or results of operations.





*Recent
      accounting pronouncements*





In
      December 2007, the FASB issued FASB Statement No. 141 (R), "Business
      Combinations" (FAS 141(R)), which establishes accounting principles and
      disclosure requirements for all transactions in which a company obtains control
      over another business. Statement 141 (R) applies prospectively to business
      combinations for which the acquisition date is on or after the beginning of
      the
      first annual reporting period beginning on or after December 15, 2008. Earlier
      adoption is prohibited.




In
      December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
      Consolidated Financial Statements, an amendment of ARB No. 51". SFAS No. 160
      establishes accounting and reporting standards that require that the ownership
      interests in subsidiaries held by parties other than the parent be clearly
      identified, labeled, and presented in the consolidated statement of financial
      position within equity, but separate from the parent's equity; the amount of
      consolidated net income attributable to the parent and to the noncontrolling
      interest be clearly identified and presented on the face of the consolidated
      statement of income; and changes in a parent's ownership interest while the
      parent retains its controlling financial interest in its subsidiary be accounted
      for consistently. SFAS No. 160 also requires that any retained noncontrolling
      equity investment in the former subsidiary be initially measured at fair value
      when a subsidiary is deconsolidated. SFAS No. 160 also sets forth the disclosure
      requirements to identify and distinguish between the interests of the parent
      and
      the interests of the noncontrolling owners. SFAS No. 160 applies to all entities
      that prepare consolidated financial statements, except not-for-profit
      organizations, but will affect only those entities that have an outstanding
      noncontrolling interest in one or more subsidiaries or that deconsolidate a
      subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods
      within those fiscal years, beginning on or after December 15, 2008. Earlier
      adoption is prohibited. SFAS No. 160 must be applied prospectively as of the
      beginning of the fiscal year in which it is
      initially applied, except for the presentation and disclosure requirements.
      The
      presentation and disclosure requirements are applied retrospectively for all
      periods presented.





9




In
      March
      2008, the FASB issued SFAS No. 161, *Disclosures
      about Derivative Instruments and Hedging Activities—an amendment of FASB
      Statement No. 133* ("SFAS No. 161"), to improve financial reporting of derivative
      instruments and hedging activities by requiring enhanced disclosures to enable
      investors to better understand their effects on an entity's financial position,
      financial performance and cash flows. SFAS No. 161 applies to fiscal
      years and interim periods beginning after November 15, 2008.




The
      Company does not believe that the adoption of the above recent pronouncements
      will have a material effect on the Company’s consolidated results of operations,
      financial position, or cash flows.





**NOTE
      2 – NOTES PAYABLE**





Notes
      payable consists of the following:





July 31, 2008
              (unaudited)
            
            January 31, 2008Notes
                payable – predecessor shareholders
            
            $
            1,500,000
            
            $
            1,500,000Note
                payable – MKM Opportunity Master Fund Ltd.
            
            
            220,000
            
            
            -1,720,000
            
            
            1,500,000Less
                current maturities
            
            
            1,720,000
            
            
            1,000,000Long
                term portion
            
            $
            -
            
            $
            500,000





*Notes
      payable – predecessor shareholders*





Notes
      payable consist of seven unsecured notes that are payable to the predecessor
      shareholders of CDC in connection with the acquisition of CDC (see Note 7).
      The
      notes were amended July 31, 2007 and March 19, 2008. Under the terms of the
      notes, as amended, interest was payable quarterly at 6.54% per annum until
      April
      1, 2008, at which time interest increased to 9.54% per annum. Principal of
      $1,500,000 is due as follows: $500,000 is due October 31, 2008; $500,000 is
      due
      on January 31, 2009; and $500,000 is due April 30, 2009.





Included
      in the $1,500,000 notes payable is a promissory note of $615,384 issued to
      an
      individual who serves as a director of the Company, of which payments of $76,923
      each were paid August 6, 2007 and December 31, 2007. Of the $461,538 note
balance, $153,846 is due October 31, 2008, $153,846 is due January 31, 2009
      and $153,846 is due on April 30, 2009.





*Notes
      payable – MKM Opportunity Master Fund Ltd.*





On
      June
      20, 2008, the Company issued a $220,000, non-secured loan to MKM Opportunity
      Master Fund, Ltd. (MKM) for working capital purposes. The loan originally bore
      interest of 12% per annum, with principal and accrued interest due July 20,
      2008. The loan also included a fee of $20,000, which is recorded as interest
      expense on the accompanying condensed consolidated financial statements. As
      of
      July 31, 2008, the Company had not repaid the loan and, as such, the loan was
      in
      default. As a consequence of the default, the loan interest increased to 18%
      per
      annum, payable on maturity. The Company is currently negotiating with the lender
      to waive the default and satisfy the obligation.


10


**NOTE
      3 - LINE OF CREDIT**







On
      April
      3, 2008, the Company entered into a second amendment to its revolving credit
      agreement dated December 31, 2006. Pursuant to the second amendment, which
      was
      effective as of February 29, 2008, the term of the revolving credit agreement
      was extended to February 28, 2009, when all amounts outstanding are due and
      payable. All advances bear interest at prime plus 2% (7% at July 31, 2008)
      and
      are payable monthly in arrears. The revolving credit agreement, as amended,
      provides for a standby fee of 1% of the unused portion of the facility. At
      July
      31, 2008, outstanding borrowings under this agreement were $1,049,892, which
      was
      in excess of its borrowing base by approximately $227,000.  Beginning July
      31, 2008, the line of credit requires the Company to meet certain financial
      covenants, which the Company did not meet. The Company is currently negotiating
      a waiver of the covenants.








**NOTE
      4 – NOTES PAYABLE - REGISTRATION PENALTY**





On
      April
      3, 2008, the Company reached an agreement with investors holding certain
      registration rights under an August 2006 Investor Rights Agreement, whereby
      the
      Company was obligated to file a registration statement covering the investors'
      shares and to have such registration statement declared effective by the
      Securities and Exchange Commission within a specified period of time. Failure
      to
      meet its obligations under the Investor Rights Agreement resulted in the Company
      incurring monetary penalties to the investors. With the execution of the Penalty
      Settlement Agreement on April 3, 2008, the parties to the Investor Rights
      Agreement agreed to cease any further accrual of the late registration penalties
      under such agreement, and the Company issued promissory notes to the investors
      in the aggregate amount of $754,600, reflecting the total accrued late
      registration penalties through February 29, 2008. The notes bear interest at
      12%
      per annum and mature March 10, 2010. If the Adjusted Share Price of the
      Company's common stock is equal to or greater than $.25 for a period of five
      (5)
      consecutive trading days the Company has the option of paying any or all of
      the
      accrued interest on the notes payable in its common stock. The agreement
      relieves the Company of any further obligation to register the investors' shares
      that were the subject of a pending registration statement.





**NOTE
      5 – COMMON STOCK**





On
      April
      2, 2008, the Company issued 20,046,000 shares of its common stock at a price
      of
      $.05 per share for a total consideration of $1,002,300. 10,000,000 shares were
      purchased by Vision Opportunity Master Fund, Ltd. ("Vision") and 10,046,000
      shares were purchased by officers, directors, and employees of the Company
      or
      its wholly owned subsidiary, Chatsworth Data Corporation, as well as existing
      shareholders of the Company. The purchase price of the stock of $0.05 was below
      the trading price of the stock by $0.065. Therefore, compensation expense of
      $522,990 was recognized for the 8,046,000 shares of stock issued to officers,
      directors and employees of the Company.





On
      June
      20, 2008, the Company agreed to issue an additional 5,600,000 shares of its
      common stock at a price of $.05 per share for a total consideration of $280,000.
      The shares were purchased by MKM Opportunity Fund, Ltd (MKM). MKM is managed
      by
      a former employee of Vision. Also on June 20, 2008, MKM loaned the Company
      $220,000 (see Note 2).





**NOTE
      6 – STOCK OPTIONS AND WARRANTS**





*Stock
      options*




On
      September 14, 2006, the Company adopted the 2006 Equity Incentive Plan (the
      Plan) for its officers, directors and consultants. Subject to adjustments,
      options to purchase no more than 10,000,000 shares of common stock may be issued
      in the aggregate under the Plan. The options may not be granted for a term
      in
      excess of ten years.


11





During
      June 2008, the Company granted options to purchase a total of 300,000 shares
      of
      common stock at $0.07 per share to various employees. The options vest one
      year
      from the date of grant with respect to 50% of the shares of common stock and
      the
      remaining options vest over the following three years and expire in 2013. The
      options were valued at $7,727, the fair value of the stock options on the date
      granted determined using a Black-Scholes pricing model. The Company recognized
      $322 of compensation expense from the date the options were granted through
      July
      31, 2008 related to the fair value of the vested options.





During
      June 2008, the Company granted options to purchase 250,000 shares of common
      stock at a price of $0.07 per share to a non-employee director. Options to
      purchase 130,000 shares of common stock vested immediately, expire in 2017,
      and
      were valued at $3,298, the fair value of the stock options on the date granted
      determined using a Black-Scholes pricing model, and were recorded as
      compensation expense. Options to purchase 120,000 shares of common stock vest
      over 24 months, expire in 2017, and were valued at $3,414. The Company
      recognized a total of $3,841 of compensation expense from the date the options
      were granted through July 31, 2008 related to the fair value of the vested
      options





The
      fair
      value of grants issued in the three and six months ended July 31, 2008 were
      determined using a Black-Scholes option pricing model with the following
      assumptions: 3.49% average risk-free interest rate; 50% expected volatility;
      expected term of five to six years, and 0% dividend yield.





At
      July
      31, 2008, options outstanding are as follows:





Shares
            
            Average
                Exercise PriceBalance
                at January 31, 2008
            
            
            7,437,500
            
            $
            0.33Granted
            
            
            550,000
            
            
            0.07Exercised
            
            
            -
            
            
            -Cancelled
            
            
            (200,000
            )
            
            0.40Balance
                at July 31, 2008 (unaudited)
            
            
            7,787,500
            
            $
            0.36





Additional
      information regarding options outstanding as of July 31, 2008 is as
      follows:


Options
                Outstanding
              Options
                ExercisableWeightedAverageNumber
                  of
              
              Remaining
              
              WeightedRange
                  of
              
              Shares
                  Under
              
              Contractual
              
              Average
              
              Shares
                  Under
              
              WeightedExercise
                  Price
              
              Options
              
              life
                  (years)
              
              Exercise
                  Price
              
              Options
              
              Exercise
                  Price$.07-$.65
              
              
              7,787,500
              
              
              6.38
              
              $
              0.27
              
              
              5,647,361
              
              $
              0.30





There
      was
      no aggregate intrinsic value of the 7,787,500 options outstanding and 5,697,361
      options exercisable as of July 31, 2008. The aggregate intrinsic value for
      the
      options is calculated as the difference between the price of the underlying
      awards and quoted price of the Company's common shares for the options that
      were
      in-the-money as of July 31, 2008.


12


A
      summary
      of the status of nonvested shares as of July 31, 2008 are as
      follows:




SharesNonvested
                at January 31, 2008
            
            
            2,411,805Granted
            
            
            550,000Vested
            
            
            (821,666
            )Nonvested
                at July 31, 2008 (unaudited)
            
            
            2,140,139





For
      the
      three and six months ended July 31, 2008, the Company recognized $35,661 and
      $82,039, respectively, of compensation expense related to the fair value of
      vested options, which has been reflected as compensation cost in the
      accompanying consolidated statement of operations.





The
      total
      future compensation expense for the outstanding value of unvested stock options
      was $223,021 as of July 31, 2008, which will be recognized over a weighted
      average period of 22 months.


*Warrants*





At
      July
      31, 2008, warrants outstanding were as follows:


Number of
              Shares under
              Warrants
            
            Weighted
              Average
              Exercise PriceWarrants outstanding
                at February 1, 2008
            
            
            12,103,000
            
            $
            0.30Warrants
                granted
            
            
            -
            
            
            -Warrants
                expired
            
            
            -
            
            
            -Warrants
                outstanding at July 31, 2008
            
            
            12,103,000
            
            $
            0.30





The
      following table summarizes information about warrants outstanding at July 31,
      2007:





Warrants
      Outstanding and Exercisable





Number of Shares
              Under Warrants
            
            Exercise Price
            
            Expiration Date
            
            Weighted Average
              Exercise Price11,000,000
            
            $
            0.30
            
            
            July
                31, 2011
            
            $
            0.301,000,000
            
            $
            0.30
            
            
            July
                31, 2011
            
            $
            0.30103,000
            
            $
            0.01
            
            
            July
                31, 2011
            
            $
            0.0112,103,000
            
            $
            0.01-$0.30
            
            
            
            
            $
            0.30





The
      aggregate intrinsic value of the 12,103,000 warrants outstanding and exercisable
      as of July 31, 2008 was $6,180. The aggregate intrinsic value for the options
      is
      calculated as the difference between the price of the underlying awards and
      quoted price of the Company's common shares for the options that were
      in-the-money as of July 31, 2008.


13





**NOTE
      7 – RELATED PARTY TRANSACTIONS**





On
      August
      1, 2006, the Company entered into consulting agreements with two individuals
      to
      serve as the chairman of the board of directors and the Company's chief
      financial officer. During the three and six months ended July 31, 2008 and
      2007,
      the Company paid or incurred an obligation to pay each individual $24,000 and
      $48,000, respectively. In addition, the Company paid a firm in which one of
      the
      consultants is a partner $2,257 and $7,668 for services for the three and six
      months ended July 31, 2007. As of July 31, 2008 the Company was obligated to
      the
      Company’s Chief Financial Officer in the amount of $24,000 for compensation
      earned but unpaid for the three months ended July 31, 2008.





A
      member
      of the Company's board of directors was a shareholder and executive manager
      of
      CDC before he sold his stock in CDC to the Company. On August 7, 2006, the
      Company issued a note payable totaling $615,384 to the individual in conjunction
      with the acquisition of CDC. At April 30, 2007, the balance of the note was
      $461,538. During the three and six months ended July 31, 2008 the Company
      accrued $11,008 and $22,015, respectively, of interest on this note to the
      current board member. During the three and six months ended July 31, 2007,
      the
      Company accrued $10,034 and $19,958, respectively, of interest on this note
      to
      the current board member





**NOTE
      8 – SUBSEQUENT EVENT**





On
      June
      13, 2008, shareholders holding approximately 72% of the issued and outstanding
      common stock of the Company approved an amendment to the Company’s articles of
      incorporation to change the name of the Company from Chatsworth Data Solutions,
      Inc. to International Data Solutions, Inc. A certificate of amendment reflecting
      the name change will be filed after dissemination of the Company’s definitive
      information statement to its shareholders is complete.


14


**ITEM
      2. Management’s Discussion and Analysis or Plan of Operation**





This
      section of this report includes a number of forward- looking statements that
      reflect our current views with respect to future events and financial
      performance. Forward-looking statements are often identified by words like:
      believe, expect, estimate, anticipate, intend, project and similar expressions,
      or words which, by their nature, refer to future events. You should not place
      undue certainty on these forward-looking statements, which apply only as of
      the
      date of this report. These forward-looking states are subject to certain risks
      and uncertainties that could cause actual results to differ materially from
      historical results or out predictions.





**Company
      Overview**




Chatsworth
      Data Solutions, Inc. was incorporated in the State of Nevada as Adera Mines
      Limited on December 30, 2003, and until August 2006 was an exploration stage
      corporation. An exploration stage corporation is one engaged in the search
      for
      mineral deposits (reserves) which are not in either the development or
      production stage. In August 2006, the Company purchased all of the outstanding
      shares of Chatsworth Data Corporation (CDC), a manufacturer of optical
      readers and read heads, scanners, impact recorders and indicators. The
      acquisition was accounted for as a purchase in accordance with Statement of
      Financial Accounting Standards No. 141 *Business
      Combinations* .
      In November,
      2006, the Company changed its name from Adera Mines Limited to Chatsworth Data
      Solutions, Inc. to reflect the acquisition and operation of CDC.


.


Prior
      to
      August 2006, CDC was privately owned. It was acquired from Republic Corporation
      in 1971 by five Republic managers, four of whom managed CDC until the sale.
      CDC's corporate headquarters are in Chatsworth, California, thirty miles
      northwest of downtown Los Angeles. Its primary business has been the development
      and manufacture of optical mark readers. Over 100,000 readers and 110,000 optic
      head assemblies have been sold worldwide by CDC. The optical mark readers have
      been traditionally sold into four vertical market sectors: education, gaming
      and
      lottery, health care, and vote tabulation. CDC also manufactures impact
      recording devices and cable testers. CDC prides itself on customer service;
      its
      engineering and design staff is able to understand client's technical problems
      and offer ready solutions to those problems. A customer hotline was installed
      over fifteen years ago to enable field problems to be handled quickly,
      efficiently and effectively. New products are designed and brought to market
      quickly in response to customer demand.





**Results
      of operations – For the three months ended July 31, 2008, compared to the three
      months ended July 31, 2007.**





Sales
      revenue totaled $1,256,960 for the three months ended July 31, 2008 and
      $2,142,320 for the three months ended July 31, 2007. Following is a table
      indicating the sales for the respective periods.


15





Sales-three
                months ended
            
            July
                31, 2008
            
            July
                31, 2007(unaudited)
            
            (unaudited)Gaming
            
            $
            378,167
            
            $
            713,956Education
            
            
            94,368
            
            
            261,405Voting
            
            
            40,857
            
            
            14,371Medical
            
            
            57,996
            
            
            94,238Others
            
            
            63,868
            
            
            81,128Total
                Optical Mark Readers
            
            
            635,256
            
            
            1,165,098Impact
                recorders/indicators
            
            
            621,704
            
            
            787,897Cablemaster
            
            
            -
            
            
            189,325Total
            
            $
            1,256,960
            
            $
            2,142,320





Sales
      of
      Optical Mark Readers declined in all vertical markets served by the Company
      except for Voting which showed a small increase. The Company believes that
      the
      reduced sales in the gaming market are a result of a decline in purchases of
      new
      equipment which is evident in the overall gaming market. The Company has
      developed a new scanner product which it believes will enable it to increase
      its
      sales in all of the vertical markets during the remaining quarters of the
      current fiscal year. The Company no longer actively markets the Cablemaster
      product and any future sales will be negligible.





Cost
      of
      sales totaled $884,127 for the three months ended July 31, 2008 and $1,221,607
      for the three months ended July 31, 2007. Gross margin percentage was 29.7%
      for
      the three months ended July 31, 2008 and 43.07% for the three months ended
      July
      31, 2007. The reduced gross margin percentage is due to the need to spread
      fixed
      manufacturing costs over a smaller volume of sales and the fact the gross margin
      is greater on Impact recorders/indicators and the Cablemaster line.





General
      and administrative (G&A) expenses totaled $912,150 for the three months
      ended July 31, 2008 and $1,114,740 for the three months ended July 31, 2007.
      Included in G&A for this quarter were accounting and legal fees totaling
      $28,796 compared to $197,096 in the quarter ended July 31, 2007. The legal
      and
      accounting fees in the quarter ended July 31, 2007 included costs incurred
      in
      connection with the attempt to register certain shares issued by the Company.
      The current quarter included no such fees. The current quarter includes the
      cost
      of outside consulting services of $31,382 compared to $ $91,369 in the quarter
      ended July 31, 2007. The cost of group medical insurance increased from $28,567
      in the quarter ended July 31, 2007 to $39,587 in the current quarter. Salary
      cost decreased from $492,635 in the quarter ended July 31, 2007 to $466,650
      in
      the current quarter. In accordance with SFAS 123(R), the Company recorded an
      expense for the fair value of vested stock options of $35,661 for the three
      month period ended July 31, 2008 compared to $66,967 for the three month period
      ended July 31, 2007.





The
      company did not record an income tax expense or benefit for the three months
      ended July 31, 2008. However the Company recorded an income tax benefit of
      $250,900 for the quarter ended July 31, 2007.


16


The
      net
      loss for the three months ended July 31, 2008 was $(924,755) compared to net
      loss of $(395,503) for the three months ended July 31, 2007.




**Results
      of operations - For the six months ended July 31, 2008, compared to the six
      months ended July 31, 2007.**





Sales
      revenue totaled $2,612,819 for the six months ended July 31, 2008 and $4,361,073
      for the six months ended July 31, 2007. Following is a table indicating the
      sales for the respective periods.





Sales-six
                months ended
            
            July
                31, 2008
            
            July
                31, 2007(unaudited)
            
            (unaudited)Gaming
            
            $
            647,989
            
            $
            1,546,263Education
            
            
            196,564
            
            
            266,404Voting
            
            
            91,674
            
            
            483,203Medical
            
            
            90,606
            
            
            145,596Others
            
            
            129,199
            
            
            124,250Total
                Optical Mark Readers
            
            
            1,156,032
            
            
            2,565,716Impact
                recorders/indicators
            
            
            1,456,787
            
            
            1,605,671Cablemaster
            
            
            -
            
            
            189,686Total
            
            $
            2,612,819
            
            $
            4,361,073





Sales
      of
      Optical Mark Readers declined in all vertical markets served by the Company.
      The
      Company believes that the reduced sales in the voting market is a result of
      customers delaying updating current voting systems and delaying the purchase
      of
      new voting systems until after the fall 2008 elections. The Company believes
      that the reduced sales in the gaming market are a result of a decline in
      purchases of new equipment which is evident in the overall gaming market. The
      Company has developed a new scanner product which it believes will enable it
      to
      increase its sales in all of the vertical markets during the remaining quarters
      of the current fiscal year. The Company no longer actively markets the
      Cablemaster product and any future sales will be negligible.





Cost
      of
      sales totaled $1,825,174 for the six months ended July 31, 2008 and $2,714,935
      for the six months ended July 31, 2007. Gross margin percentage was 30.14%
      for
      the six months ended July 31, 2008 and 37.87% for the six months ended July
      31,
      2007. The reduced gross margin percentage is due to the need to spread fixed
      manufacturing costs over a smaller volume of sales and the fact the gross margin
      is greater on Impact recorders/indicators and the Cablemaster line.





General
      and administrative (G&A) expenses totaled $2,429,185 for the six months
      ended July 31, 2008 and $2,189,633 for the six months ended July 31, 2007.
      Included in G&A for the current six month period is accounting and legal
      fees totaling $99,891 compared to $353,790 in the quarter ended July 31, 2007.
      The legal and accounting fees in the six month period ended July 31, 2007
      included costs incurred in connection with the attempt to register certain
      shares issued by the Company. The current quarter included no such fees. The
      current six month period includes the cost of outside consulting services of
      $125,269 compared to $247,135 in the quarter ended July 31, 2007. The cost
      of
      group medical insurance increased from $51,434 in the six month period ended
      July 31, 2007 to $72,425 in the current six month period. Salary cost decreased
      from $938,626 in the six month period ended July 31, 2007 to $902,572 in the
      current period. In accordance with SFAS 123(R), the Company recorded an expense
      for the fair value of vested stock options of $82,039 for the six month period
      ended July 31, 2008 compared to $126,652 for the six month period ended July
      31,
      2007. Also in accordance with SFAS 123(R), in the six month period ended July
      31, 2008 the Company recorded compensation expense in connection with the
      issuance of common stock in the amount of $522,990. No such expense was recorded
      in the six month period ended July 31, 2007.


17





The
      company recorded a net tax benefit of $512,538 in the six month period ended
      July 31, 2007. However no income tax expense or income tax benefit was recorded
      in the six month period ended July 31, 2008.





The
      net
      loss for the six months ended July 31, 2008 was $(2,388,043) compared to net
      loss of $(775,246) for the six months ended July 31, 2007.





**Liquidity
      and Capital Resources**





As
      of
      July 31, 2008, the Company had cash on hand of $8,230 compared to $72,329 as
      of
      January 31, 2008. The Company used $797,194 of cash in operating activities
      for
      the six months ended July 31, 2008 compared to $981,794 for the six months
      ended
      July 31, 2007. On June 20, 2008 the Company closed on $280,000 of an authorized
      $1,500,000 private placement of securities. The Company also borrowed $220,000
      from the purchaser of the securities, MKM Opportunity Master Fund, Ltd. The
      Company advanced $475,000 of the $500,000 to its subsidiary, CDC, for use in
      its
      day to day operations. During the six month period ended July 31, 2008, the
      Company converted a registration payment obligation into a note payable that
      matures on March 10, 2010 and bears interest at 12% per annum payable at
      maturity. The agreement relieves the Company of any obligation to register
      the
      investors’ shares that were the subject of a pending registration statement.








As
      of
      July 31, 2008, CDC had borrowed $1,049,892 under its $3 million revolving line
      of credit. The line of credit matured February 28, 2008 and on April 3, 2008,
      the Company negotiated an extension of the line of credit to February 28, 2009
      and obtained a waiver of default for non-compliance with all existing financial
      covenants as of January 31, 2008. Effective February 29, 2008, the interest
      rate
      under the line of credit increased to prime plus 2% (7% as of July 31, 2008).
      The increase in rate will result in approximately $24,000 of additional annual
      interest expense based on the current amount of borrowings. As of July 31,
      2008,
      the Company had exceeded it borrowing base under
      this agreement by
      $227,070. The Company had reduced the excess borrowing to $60,742 as of August
      31, 2008, as a result of an increased borrowing base as of that date.


18





As
      of
      July 31, 2008, notes payable totaled $1,720,000. Notes payable to the selling
      shareholders in the amount of $1,500,000 were amended on March 31, 2008. The
      maturity schedule was amended so principal of $500,000 is due October 31, 2008;
      principal of $500,000 is due on January 31, 2009; and principal of $500,000
      is
      due April 30, 2009. In addition, starting April 1, 2008, the interest rate
      of
      the outstanding promissory notes will increase to 9.54% from 6.54% at January
      31, 2008. No other terms of the notes were modified. The increase in rate will
      result in approximately $45,000 of additional annual interest expense based
      on
      the current amount of the notes payable.  The principal of the note in the
      amount of $220,000 to MKM Opportunity Master Fund, Ltd. and all accrued interest
      was due on July 20, 2008. The note and accrued interest remains unpaid as of
      August 31, 2008. The note bears interest at 12% until maturity and after that
      date bears interest at 18% per annum. In addition, the Company is obligated
      to
      MKM Opportunity Master Fund, Ltd. in the amount of $20,000 which represents
      a
      commitment fee payable if the note has not been paid by August 20, 2008.





Management
      believes that its existing cash balance at July 31, 2008 will not be sufficient
      to meet its obligation under note to MKM Opportunity Master Fund, Ltd., its
      working capital, capital expenditure and investment requirements for the next
      12
      months. Without additional borrowings, the Company may not be able to make
      its
      interest payment on the selling shareholders notes due on September 30, 2008
      of
      approximately $25,000 and the principal payment due on those notes on October
      31, 2008 in the amount of $500,000. The Company may also require funds for
      other
      purposes and may seek to raise such funds though public and private financings
      or from other sources. There is no assurance that additional financing will
      be
      available at all or that, if available, such financing will be obtainable on
      terms favorable to the Company or that any additional financing will not be
      dilutive.





**Critical
      Accounting Policies**


**Revenue
      recognition**





The
      Company recognizes revenue when there is persuasive evidence that an arrangement
      exists, delivery of the product has occurred and title has passed, the selling
      price is both fixed and determinable, and collectibility is reasonably assured,
      all of which generally occurs upon shipment of the Company’s product or delivery
      of the product to the destination specified by the customer.





**Intangible
      assets**





Intangible
      assets and goodwill are related to the Company's acquisition of CDC in August
      2007. Intangible
      assets with finite lives are amortized over their estimated useful lives, which
      are three years for customer relations and five years for propriety technology.
      In addition to amortization, intangible assets are tested at least annually
      for
      impairment.





Goodwill
      represents the excess of the cost of the acquired entity over the net of amounts
      assigned to assets acquired and liabilities assumed, and is not amortized.
      The
      Company tests goodwill for impairment at
      least
      annually by
      using
      a two-step process. In the first step, the fair value of the reporting unit, estimated
      using a discounted cash flows approach, is
      compared with the carrying amount of the reporting unit, including goodwill. If
      the
      carrying amount of the reporting unit exceeds its fair value, goodwill is
      considered impaired and a second step is performed to measure the amount of
      impairment loss, if any. There was no impairment loss recognized in 2006 and
      2007 to date.


19





**Stock-based
      compensation**





The
      Company estimates the fair value of stock options using a Black-Scholes option
      pricing model, consistent with the provisions of SFAS No. 123 (revised
      2004), *Share-Based
      Payment* (SFAS
      123(R). SFAS 123(R) requires all share-based payments to employees, including
      stock option grants, to be recognized in the income statement based on their
      fair values. The standard applies to newly granted awards and previously granted
      awards that are not fully vested on the date of adoption. The Company adopted
      SFAS 123(R) using the modified prospective method, which requires that
      compensation expense for the portion of awards for which the requisite service
      has not yet been rendered and that are outstanding as of the adoption date
      be
      recorded over the remaining service period. Prior to the adoption of SFAS
      No. 123(R) on February 1, 2006, the Company had no share-based payments.
      Accordingly, no prior periods have been restated, the impact of SFAS 123(R)
      is
      not presented, and no pro forma amounts are presented for 2005 had the Company
      recognized stock-based compensation in accordance with SFAS No. 123.





The
      Company accounts for options and warrants granted to non-employees under SFAS
      No. 123(R) and Emerging Issues Task Force Issue No. 96-18, *Accounting
      for Equity Instruments that are issued to other than Employees for Acquiring
      or
      in Conjunction with Selling Goods or Services* .
      The
      Company measures the fair value of such options using the Black-Scholes option
      pricing model at each financial reporting date.





**Recent
      accounting pronouncements**





In
      December 2007, the FASB issued FASB Statement No. 141 (R), “Business
      Combinations” (FAS 141(R)), which establishes accounting principles and
      disclosure requirements for all transactions in which a company obtains control
      over another business. Statement 141 (R) applies prospectively to business
      combinations for which the acquisition date is on or after the beginning of
      the
      first annual reporting period beginning on or after December 15, 2008. Earlier
      adoption is prohibited.




In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS No. 160
      establishes accounting and reporting standards that require that the ownership
      interests in subsidiaries held by parties other than the parent be clearly
      identified, labeled, and presented in the consolidated statement of financial
      position within equity, but separate from the parent’s equity; the amount of
      consolidated net income attributable to the parent and to the noncontrolling
      interest be clearly identified and presented on the face of the consolidated
      statement of income; and changes in a parent’s ownership interest while the
      parent retains its controlling financial interest in its subsidiary be accounted
      for consistently. SFAS No. 160 also requires that any retained noncontrolling
      equity investment in the former subsidiary be initially measured at fair value
      when a subsidiary is deconsolidated. SFAS No. 160 also sets forth the disclosure
      requirements to identify and distinguish between the interests of the parent
      and
      the interests of the noncontrolling owners. SFAS No. 160 applies to all entities
      that prepare consolidated financial statements, except not-for-profit
      organizations, but will affect only those entities that have an outstanding
      noncontrolling interest in one or more subsidiaries or that deconsolidate a
      subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods
      within those fiscal years, beginning on or after December 15, 2008. Earlier
      adoption is prohibited. SFAS No. 160 must be applied prospectively as of the
      beginning of the fiscal year in which it is initially applied, except for the
      presentation and disclosure requirements. The presentation and disclosure
      requirements are applied retrospectively for all periods
      presented.


20




In
      March
      2008, the FASB issued SFAS No. 161, *Disclosures
      about Derivative Instruments and Hedging Activities—an amendment of FASB
      Statement No. 133* ("SFAS No. 161"), to improve financial reporting of derivative
      instruments and hedging activities by requiring enhanced disclosures to enable
      investors to better understand their effects on an entity's financial position,
      financial performance and cash flows. SFAS No. 161 applies to fiscal
      years and interim periods beginning after November 15, 2008.




The
      Company does not believe that the adoption of the above recent pronouncements
      will have a material effect on the Company’s consolidated results of operations,
      financial position, or cash flows.





**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK**





The
      Company is  a  smaller  reporting  company and is
      not required to provide the information required by this.





**ITEM
      4. CONTROLS AND PROCEDURES**





(a)
      Evaluation of disclosure controls and procedures. As of the end of the period
      covered by this report, we carried out an evaluation, under the supervision
      and
      with the participation of our management, including our Chief Executive Officer
      and Chief Financial Officer, of the effectiveness of the design and operation
      of
      our disclosure controls and procedures, as defined in Rules 13a-15(e) and
      15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon
      that
      evaluation, our Chief Executive Officer and Chief Financial Officer concluded
      that our disclosure controls and procedures are
      effective to ensure that information required to be disclosed by us in reports
      that we file or submit under the Exchange Act is recorded, processed, summarized
      and reported within the time periods specified in SEC rules and forms.





(b)
      Changes in internal controls over financial reporting. There was no change
      in
      our internal control over financial reporting during our most recent fiscal
      quarter that has materially affected, or is reasonably likely to materially
      affect, our internal control over financial reporting.


21


**PART
      II - OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





Not
      applicable.





**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**





On
      April
      2, 2008, the Company closed on $1,002,300 of subscriptions raised under a Common
      Stock Purchase Agreement (“SPA”) by and among the Company and a group of
      investors (collectively the” Investors”). Terms of the SPA provided for a
      minimum of 20,000,000 shares and a maximum of 30,000,000 shares to be sold
      under
      the SPA, at a price of $.05 per share. On April 2, 2008, the Company held its
      initial closing of the common stock offering, and issued 20,046,000 shares
      of
      its common stock at a price of $.05 per share for a total consideration of
      $1,002,300. Ten million shares were purchased by Vision Opportunity Master
      Fund,
      Ltd. (“Vision”) and 10,046,000 shares were purchased by other accredited
      investors, including officers, directors, management and employees of the
      Company or its wholly owned subsidiary, Chatsworth Data Corporation, as well
      as
      existing shareholders of the Company.





The
      purchase price of the stock under the SPA of $0.05 was below the trading price
      of the stock by $0.065. Therefore, compensation expense of $522,990 was
      recognized for the 8,046,000 shares of stock issued to officers, directors
      and
      employees of the Company.





The
      securities were offered and sold by the Company pursuant to exemptions from
      registration set forth in section 4(2) of the Securities Act of 1933, as
      amended.





The
      common stock purchased by Investors other than Vision is subject to a Lock-up
      Agreement, which provides that the Investor may not sell the common stock
      purchased by him for a period of twelve (12) months following the closing.
      Thereafter, the Investor may sell no more than 1/12 of the shares in any one
      month for a period of 24 months.





The
      funds
      received by the Company were immediately transferred to Chatsworth Data
      Corporation for use in its operations.





On
      June
      20, 2008, the Company closed on an additional $500,000 of funding, evidenced
      by
      a private placement of securities in the amount of $280,000 and the issuance
      of
      the Company's promissory note for $220,000. The note bears interest at 12%
      per
      annum and matured on July 20, 2008. The note remains unpaid as of August 31,
      2008 and is now in default. The note now bears interest at the default rate
      of
      18%. In addition the Company is obligated to pay a commitment fee of $20,000
      as
      a result of not paying the principal of the note by August 20, 2008.





The
      purchase price of the stock under the SPA of $0.05 and 5,600,000 shares of
      were
      sold to the purchaser.





The
      securities were offered and sold by the Company pursuant to exemptions from
      registration set forth in section 4(2) of the Securities Act of 1933, as
      amended.


22





Funds
      received by the Company in the amount of $475,000 were immediately transferred
      to Chatsworth Data Corporation for use in its operations.





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**





On
      June
      20, 2008, the Company issued a $220,000, non-secured loan to MKM Opportunity
      Master Fund, Ltd. (MKM) for working capital purposes. The loan originally bore
      interest of 12% per annum, with principal and accrued interest due July 20,
      2008. As of July 31, 2008, the Company had not repaid the loan and, as such,
      the
      loan was in default. As a consequence of the default, the loan interest
      increased to 18% per annum, payable on maturity. The Company is currently
      negotiating with the lender to waive the default and satisfy the
      obligation.








On
      December 1, 2006, CDC entered into a revolving credit agreement with a financial
      institution. On April 3, 2008, the Company entered into a second amendment
      to
      its revolving credit. At July 31, 2008, outstanding borrowings under this
      agreement were $1,049,892, which was in excess of its borrowing base by
      approximately $227,000.  Beginning July 31, 2008, the line of credit
      requires the Company to meet certain financial covenants, which the Company
      did
      not meet. The Company is currently negotiating a waiver of the covenants.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





Not
      applicable.





**ITEM
      5. OTHER INFORMATION**





Not
      applicable.





**ITEM
      6. EXHIBITS**





(a)
      Exhibits





The
      exhibits listed in the Exhibit Index are filed as a part of this report.


23





**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the Registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly authorized.





**CHATSWORTH
                DATA SOLUTIONS, INC.**Date:
                September __, 2008
            /s/
                Sidney L. AndersonSidney
                L. Anderson
              Chief
                Executive Officer, President




24


**INDEX
      TO EXHIBITS.**





**Exhibit**
              **Number**
            
            **Description**31.1
            
            Rule
                13a-14(a)/15d-14(a) Certification by the Chief Executive
                Officer.31.2
            
            Rule13a-14(a)/15d-14(a)
                Certification by the Chief Financial Officer.32.1
            
            Certifications
                by the Chief Executive Officer and Chief Financial Officer pursuant
                to 18
                U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.




25