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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB
(Mark one)

       |X| Quarterly Report under Section 13 or 15(d) of the Securities Exchange
           Act of 1934

           For the quarterly period ended September 30, 2006

       | | Transition Report under Section 13 or 15(d) of the Exchange Act

           For the transition period from            to
                                          ----------    ----------

                        Commission file number 333-112603

                            CATSKILL LITIGATION TRUST
 (Exact Name of Small Business Issuer as Specified in Its Declaration of Trust)

              DELAWARE                                  16-6547621
  -------------------------------         ------------------------------------
  (State or Other Jurisdiction of         (I.R.S. Employer Identification No.)
   Incorporation or Organization)

                       C/O CHRISTIANA BANK & TRUST COMPANY
                                1314 King Street
                           Wilmington, Delaware 19801
--------------------------------------------------------------------------------
                    (Address of Principal Executive Offices)

                                 (302) 888-7400
--------------------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)


--------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that Catskill  Litigation  Trust was required to file such reports),  and
(2) has been subject to such filing  requirements  for the past 90 days. Yes |X|
No | |

 Indicate by check mark whether the registrant is a shell company (as defined in
                 Rule 12b-2 of the Exchange Act). Yes | | No |X|


        As of November 10, 2006, 22,702,896 Units of beneficial interest
                               were outstanding.

    Transitional Small Business Disclosure Format (check one): Yes | | No |X|

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




                            CATSKILL LITIGATION TRUST

                                   FORM 10-QSB

                                      INDEX

PART I - FINANCIAL INFORMATION                                             Page

         ITEM 1. CONDENSED FINANCIAL STATEMENTS (unaudited)

         Condensed Balance Sheet as of September 30, 2006                  3

         Condensed Statements of Operations for the Three Months and
         Nine Months Ended September 30, 2006 and September 30, 2005       4

         Condensed Statements of Cash Flows for the Nine Months Ended
         September 30, 2006 and September 30, 2005                         5

         Notes to Condensed Financial Statements                           6-9

         ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS
         OR PLAN OF OPERATION                                              10-12

         ITEM 3.  CONTROLS AND PROCEDURES                                  12

PART II - OTHER INFORMATION

         ITEM 1.  LEGAL PROCEEDINGS                                        14-15

         ITEM 6.  EXHIBITS                                                 15

SIGNATURES                                                                 16

CERTIFICATIONS                                                             17-20


                                       2


                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                            CATSKILL LITIGATION TRUST
                             CONDENSED BALANCE SHEET
                               September 30, 2006
                                   (Unaudited)

ASSETS
   Current Assets
         Cash and Cash Equivalents                                   $    38,328
                                                                     -----------
   Total Current Assets                                                   38,328
                                                                     -----------
TOTAL ASSETS                                                         $    38,328
                                                                     ===========

LIABILITIES AND TRUST DEFICIENCY
      Current Liabilities
           Line of credit-related party                              $ 1,365,000
                                                                     -----------
      Total Current Liabilities                                        1,365,000
      Trust Deficiency
           Units of Beneficial Interest: authorized 22,702,896;
           issued and outstanding 22,702,896, stated as                  124,052
      Accumulated deficit                                             (1,450,724)
                                                                     -----------
      Total Trust Deficiency                                          (1,326,672)
                                                                     -----------
TOTAL LIABILITIES AND TRUST DEFICIENCY                               $    38,328
                                                                     ===========

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


                                       3


                                                  CATSKILL LITIGATION TRUST
                                              CONDENSED STATEMENTS OF OPERATIONS
                                                         (Unaudited)

                                                   For the             For the              For the             For the
                                              Three Months Ended  Three Months Ended  Nine Months Ended   Nine Months Ended
                                              September 30, 2006  September 30, 2005  September 30, 2006  September 30, 2005
                                              ------------------  ------------------  ------------------  ------------------

General and Administrative Expenses:
Litigation Trustee Fees                          $     30,000        $     30,000        $     90,000        $     90,000
Administrative Trustee Fees                             1,500               1,500               4,500               4,500
Consulting Fees                                         1,500               1,500               4,500               4,500
Legal Fees                                             71,413             119,363             206,181             395,735
Accounting Fees                                         7,000               7,000              26,000              31,750
Interest Expense                                       24,716              13,689              67,063              28,562
Other                                                     815               4,654               3,989               8,396
                                                 ------------        ------------        ------------        ------------
Total General and Administrative Expenses             136,944             177,706             402,233             563,443
Other Income                                              742                 199               1,263               1,581
                                                 ------------        ------------        ------------        ------------
Net Loss                                         $   (136,202)       $   (177,507)       $   (400,970)       $   (561,862)
                                                 ============        ============        ============        ============
Loss per unit outstanding                        $      (0.01)       $      (0.01)       $      (0.02)       $      (0.02)
                                                 ============        ============        ============        ============
Units outstanding                                  22,702,896          22,702,896          22,702,896          22,702,896
                                                 ============        ============        ============        ============

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


                                                              4


                                     CATSKILL LITIGATION TRUST
                                 CONDENSED STATEMENT OF CASH FLOWS
                                            (Unaudited)

                                                            For the                  For the
                                                       Nine Months Ended        Nine Months Ended
                                                       September 30, 2006       September 30, 2005
                                                       ------------------       ------------------
Cash flows from operating Activities
Net loss                                                   $(400,970)               $(561,862)
   Adjustments to reconcile net loss to net cash
   used in operating activities:
      Imputed interest expense                                67,063                   28,562
   Changes in operating assets and liabilities:
      Accounts payable                                          --                    156,855
      Accrued expenses                                          --                    (31,715)
                                                           ---------                ---------
Net cash used in operating activities                       (333,907)                (408,160)

Cash flow from financing activities
      Increase in line of credit-related party               355,000                  200,000
                                                           ---------                ---------

Increase (decrease) in Cash and Cash Equivalents              21,093                 (208,160)

Cash and Cash Equivalents - beginning of period               17,235                  222,493
                                                           ---------                ---------
Cash and Cash Equivalents - end of period                  $  38,328                $  14,333
                                                           =========                =========

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


                                                 5


                            CATSKILL LITIGATION TRUST

     Notes to Condensed Financial Statements--September 30, 2006 (Unaudited)

NOTE 1 - THE TRUST

         The  Catskill  Litigation  Trust is a  Delaware  statutory  trust  (the
         "Litigation Trust") formed by Empire Resorts,  Inc. ("Empire Resorts"),
         Catskill   Development,   L.L.C.   ("Catskill"),   Monticello   Raceway
         Management,  Inc.,  ("MRMI"),  Monticello  Casino  Management,  L.L.C.,
         Monticello  Raceway  Development  Company,  L.L.C.  ("MRDC") and Mohawk
         Management, L.L.C. ("Mohawk"). On January 12, 2004, 22,702,896 units of
         beneficial  interest  were issued to the members  and  stockholders  of
         those entities.  At that time,  Empire Resorts,  Catskill  Development,
         L.L.C. ("Catskill"),  MRDC, Mohawk, Joseph E. Bernstein, Paul A. deBary
         and Christiana  Bank and Trust Company (the  "Administrative  Trustee")
         entered into the Declaration of Trust of Catskill Litigation Trust (the
         "Declaration of Trust").  Messrs.  Bernstein and deBary are hereinafter
         referred to as the "Litigation Trustees".

         In the Declaration of Trust, Catskill,  MRDC and Mohawk assigned to the
         Litigation Trust all of their claims under or related to the alienation
         and frustration of their agreements and business relations with the St.
         Regis Mohawk Tribe and their rights to any judgment or settlement  that
         may arise from any  litigation  relating to two  litigations:  Catskill
         Development,  L.L.C.,  Mohawk Management L.L.C. and Monticello  Raceway
         Development  Company  L.L.C.,  Plaintiffs  v. Park Place  Entertainment
         Corporation,  Defendant  (the "PPE  Case")  and  Catskill  Development,
         L.L.C.,  Mohawk  Management,  L.L.C.,  Monticello  Raceway  Development
         Company, L.L.C.,  Plaintiffs v. Gary Melius, Ivan Kaufman, Walter Horn,
         President  R.C.  - St.  Regis  Management  Company,  et al,  Defendants
         (hereinafter  referred  to,  collectively  with  the PPE  case,  as the
         "Litigation").  If at any time the Litigation  Trustees  determine,  in
         their absolute discretion,  that the assets of the Litigation Trust are
         not sufficient to justify its continuance,  the Litigation Trustees are
         authorized  to  terminate  the  Litigation  Trust.  In  addition,   the
         Litigation  Trust is to terminate on the date that all  litigation  has
         been fully  prosecuted to final  judgment or  dismissal,  including all
         appeals,  and all Litigation  Trust assets have been distributed to the
         Litigation Trust's beneficiaries.

         In June  2006,  two of the  plaintiffs  in the PPE case were  dismissed
         without  prejudice on  jurisdictional  grounds as a result of a finding
         that these parties lacked diversity of citizenship. A new complaint was
         subsequently  filed by the  Trustees  on  behalf  of these  plaintiffs.
         Pursuant to a stipulation  entered into by all parties to the PPE case,
         the parties accepted all previous  determinations of the trial court as
         applicable to the new complaint and the case was consolidated with that
         of the remaining  plaintiff,  essentially  restoring the parties to the
         status that had existed prior to the dismissal. Accordingly, references
         to  the  "PPE  case"  subsequent  to  the  consolidation  refer  to the
         consolidated case.

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         BASIS OF PRESENTATION

         These unaudited  condensed  financial  statements have been prepared in
         accordance with accounting  principles generally accepted in the United
         States  of  America  ("GAAP"),  and with  Form  10-QSB  and Item 310 of
         Regulation  S-B of  the  Securities  and  Exchange  Commission.  In the
         opinion  of  the  Litigation  Trustees,   the  accompanying   unaudited
         condensed  financial  statements contain all the adjustments  necessary
         (consisting only of normal recurring accruals) for a fair presentation.
         The interim results are not necessarily  indicative of the results that
         would be expected for the full year and do not contain all  information
         included in the  Litigation  Trust's  annual  financial  statements and
         notes for the year ended December 31, 2005.

         Certain  information  and  footnote  disclosures  normally  included in
         financial statements prepared in accordance with accounting  principles
         generally  accepted in the United States of America have been condensed
         or omitted. It is suggested that these financial  statements be read in
         conjunction  with the audited  financial  statements  and notes thereto
         included in the report on Form 10-KSB for the year ended  December  31,
         2005.


                                       6


         USE OF ESTIMATES IN THE FINANCIAL STATEMENTS

         The  preparation of financial  statements in conformity with accounting
         principles  generally accepted in the United States of America requires
         the Litigation  Trustees 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.

         CASH AND CASH EQUIVALENTS

         Cash and cash equivalents include cash on account,  demand deposits and
         certificates  of deposit with  original  maturities  of three months or
         less at  acquisition  and money market  funds.  From time to time,  the
         Litigation  Trust maintains  significant cash balances in excess of the
         amounts  covered by the  Federal  Deposit  Insurance  Corporation.  The
         Litigation  Trust has not incurred any losses in such  accounts and the
         Litigation Trustees believe it is not exposed to any significant credit
         risk on cash.


         INCOME TAXES

         For federal income tax purposes,  the Litigation  Trust is treated as a
         grantor trust.  Under the grantor trust rules, each holder of a unit of
         beneficial  interest is treated as the owner of his or her share of the
         Litigation  Trust's  assets.  The treatment of income and expense items
         under GAAP may differ from the tax  treatment  of such items.  Expenses
         incurred by the Litigation Trust are capitalized for tax purposes.

NOTE 3 - LINE OF CREDIT-RELATED PARTY

         Empire Resorts, a related party, has provided the Litigation Trust with
         a line of credit of up to $2,500,000. The line of credit can be used to
         pay  all  expenses  of  the  Litigation   Trust   permitted  under  the
         Declaration of Trust,  including but not limited to  professional  fees
         and  the  fees  and  expenses  of  the  Litigation  and  Administrative
         Trustees.  The line of  credit  is  non-interest  bearing  and is to be
         repaid from any amounts received from litigation settlements or awards.
         The line of  credit  expires  upon the  termination  of the  Litigation
         Trust.

         As of September 30, 2006, $1,365,000 had been drawn against the line of
         credit.

         The  Litigation  Trust  imputed  interest on the  borrowings  at Empire
         Resorts'  borrowing rate (8.00% per annum at September 30, 2006). Prior
         to July 1, 2005,  Empire  Resorts'  borrowing rate was 5.50%.  Interest
         expense for the nine months ended  September 30, 2006 and September 30,
         2005 amounted to $67,063 and $28,562,  respectively.  Imputed  interest
         expense is deemed contributed capital to the Litigation Trust.

NOTE 4 - DISTRIBUTIONS

         The  distribution  of any net proceeds from  litigation  settlements or
         awards,  after  amounts  are  applied to cover all  current or expected
         expenses of the Litigation  Trust, is to be made at the sole discretion
         of the Litigation Trustees and will be distributed as follows:

         First:   To  pay  the  Litigation   Trustees  their  fees  arising  from
         litigation settlements or awards. (See Note 5.)

         Second: To reimburse $7,500,000 to Empire Resorts for expenses incurred
         in  connection  with  the  Litigation  prior  to the  formation  of the
         Litigation Trust and, in addition,  to repay Empire Resorts any amounts
         outstanding under the line of credit.

         Third: If any amount remains after the above requirements are met, such
         amount  remaining  is to be  divided  among  the  beneficiaries  of the
         Litigation  Trust in proportion  to their  ownership of units as of the
         date the distribution is made.


                                       7


NOTE 5 - COMMITMENTS AND CONTINGENCIES

         COMPENSATION OF LITIGATION TRUSTEES

         Each of the two Litigation  Trustees is entitled to annual compensation
         of $60,000 plus  reimbursement  of expenses  incurred  carrying out the
         purpose of the Litigation Trust. In addition, one litigation trustee is
         entitled to 4.0%, and the other 1.0%, of any litigation  settlements or
         awards.

         COMPENSATION OF THE ADMINISTRATIVE TRUSTEE

         The Administrative  Trustee is entitled to a monthly administrative fee
         of $500.  In  addition,  the  Administrative  Trustee is  entitled to a
         custody fee on certain cash balances and marketable  securities of 0.5%
         per annum on the first $10,000,000 of fair value and 3.0% on the excess
         and reimbursement for certain fees and expenses.

         EXPENSES PAID PRIOR TO THE FORMATION OF THE LITIGATION TRUST

         As  discussed  in Note 4, the  Litigation  Trust is obligated to pay to
         Empire  Resorts  up to  $7,500,000.  This  amount  represents  expenses
         incurred prior to the formation of the Litigation  Trust. The amount is
         payable solely from the proceeds of litigation settlements or awards.

         REPAYMENTS OF AMOUNTS DRAWN UNDER THE LINE OF CREDIT-RELATED PARTY

         As  discussed  in Note 4, the  expenses  of the  Litigation  Trust  are
         expected to be paid from draws under the line of credit.  Amounts drawn
         under the line of credit  are to be repaid  from any  amounts  received
         from litigation settlements or awards.

         ADDITIONAL AMOUNTS PAYABLE TO APPEALS COUNSEL

         Under the terms of the Litigation Trust's arrangement with the law firm
         handling  its appeal,  additional  fees in an  aggregate  amount not to
         exceed $100,000 may be payable to that firm.

         The exact amount  payable in the event of a reversal of the decision by
         the trial  court will vary from  $50,000 to $100,000  depending  on the
         precise nature of the outcome.

NOTE 6 - CERTAIN RELATIONSHIPS

         The Litigation  Trustees are both currently  members of Empire Resorts'
         Board of Directors.

NOTE 7 - RECENT ACCOUNTING PRONOUNCEMENTS

         In February 2006,  the Financial  Accounting  Standards  Board ("FASB")
         issued Statement of Financial  Accounting Standard 155 - Accounting for
         Certain Hybrid Financial Instruments ("SFAS No. 155"), which eliminates
         the exemption  from  applying SFAS No. 133 to interests in  securitized
         financial  assets  so  that  similar   instruments  are  accounted  for
         similarly regardless of the form of the instruments.  SFAS No. 155 also
         allows  the  election  of fair value  measurement  at  acquisition,  at
         issuance,  or when a  previously  recognized  financial  instrument  is
         subject to  re-measurement.  Adoption is  effective  for all  financial
         instruments  acquired or issued after the beginning of the first fiscal
         year that begins after September 15, 2006. Early adoption is permitted.
         The adoption of SFAS No. 155 is not expected to have a material  effect
         on the Litigation Trust's financial position,  results of operations or
         cash flows.

         In March  2006,  the FASB  issued  Statement  of  Financial  Accounting
         Standard 156 - Accounting for Servicing of Financial  Assets ("SFAS No.
         156"),  which requires all separately  recognized  servicing assets and
         servicing liabilities be initially measured at fair value. SFAS No. 156
         permits, but does not require, the subsequent  measurement of servicing
         assets and servicing liabilities at fair value. Adoption is required as
         of the  beginning of the first fiscal year that begins after  September


                                       8


         15, 2006. Early adoption is permitted.  The adoption of SFAS No. 156 is
         not  expected  to have a  material  effect  on the  Litigation  Trust's
         financial position, results of operations or cash flows.

         In  September   2006,  the  FASB  issued  SFAS  No.  157,  "FAIR  VALUE
         MEASUREMENTS"  ("SFAS No.  157").  This  Statement  defines fair value,
         establishes a framework for measuring fair value and expands disclosure
         of fair value measurements. SFAS No. 157 applies under other accounting
         pronouncements  that  require  or permit  fair value  measurements  and
         accordingly, does not require any new fair value measurements. SFAS No.
         157 is  effective  for  financial  statements  issued for fiscal  years
         beginning  after November 15, 2007. The Litigation  Trust is evaluating
         whether  the  adoption  of SFAS No.  157 will  have any  impact  on its
         results of operations and financial condition.

NOTE 8 - SUBSEQUENT EVENTS

         On October 11, 2006, following the filing of a new complaint in the PPE
         case by the Litigation  Trustees on behalf of two of the plaintiffs who
         had been dismissed, the District Court consolidated the new action with
         the existing  action.  An amended answer to the new complaint was filed
         on  November 2, 2006.  The effect of these  actions has been to fulfill
         the  technical  requirements  necessary  to restore the PPE case to the
         status it was in prior to the  dismissal of the two  plaintiffs,  whose
         claims will now be represented by the Litigation Trustees.


                                       9


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

FORWARD-LOOKING STATEMENTS

      This Report on Form 10-QSB contains  "forward-looking  statements"  within
the meaning of Section 27A of the Securities Act of 1933, as amended and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All
statements  other than  statements of historical  facts included in this Report,
including without limitation, the statements under "General," and "Liquidity and
Capital Resources," are forward-looking  statements.  All subsequent written and
oral forward-looking  statements attributable to the Litigation Trust or persons
acting on its behalf are expressly qualified in their entirety by the cautionary
statements.

      The following discussions should be read in conjunction with our financial
statements  and the  related  notes  thereto  and  other  financial  information
appearing   elsewhere  in  this  report.  The  following   discussion   contains
forward-looking  statements  that involve  risks and  uncertainties.  Our actual
results could differ  materially from those  anticipated in the  forward-looking
statements as a result of various factors,  including those discussed  elsewhere
in this report.

GENERAL

      We are a statutory  trust created under  Delaware law. Our formation was a
condition to the merger of Empire Resorts,  Inc. ("Empire Resorts"),  Monticello
Raceway  Management,  Inc.,  ("MRMI"),   Monticello  Casino  Management,  L.L.C.
("MCM"),  Monticello Raceway  Development  Company,  L.L.C.  ("MRDC") and Mohawk
Management,  L.L.C.  ("Mohawk").  Also as a condition  to that  merger,  each of
Catskill Development, L.L.C. ("Catskill"), MRDC, and Mohawk, agreed to assign to
us all of their claims under or related to the  alienation  and  frustration  of
their  agreements and business  relations with the St. Regis Mohawk Tribe.  That
assignment included rights to any proceeds from any settlement or award that may
arise from any litigation  relating to that claim.  We currently  maintain a web
site  at  WWW.CATSKILLTRUST.COM  to  facilitate  communications  and  provide  a
convenient  source of more detailed  information for our  unit-holders and other
interested parties.

      Our  litigation  claims arise from the efforts of each of Catskill,  MRDC,
and  Mohawk  to  develop  with the St.  Regis  Mohawk  Tribe a gaming  casino in
Monticello,  New York. The plaintiffs spent several years and substantial  funds
to develop and obtain  required  approvals  for the casino.  Subsequently,  Park
Place  Entertainment  Corporation,  the world's  largest gaming  corporation and
Atlantic City's largest casino operator, entered into an agreement providing for
the St.  Regis  Mohawk  Tribe to commit its future  casino  development  efforts
exclusively to Park Place Entertainment  Corporation.  That agreement conflicted
with the Mohawk Tribe's agreements with Catskill, MRDC and Mohawk.

      There is one lawsuit  pending and one lawsuit that has been  discontinued.
The first lawsuit is Catskill Development,  L.L.C.,  Mohawk Management,  L.L.C.,
and Monticello Raceway Development Company,  L.L.C.,  Plaintiffs.  v. Park Place
Entertainment  Corporation,  Defendant.  (Civil Action No. 00CIV8660 (CM) (GAY))
(United States District Court Southern  District of New York) referred to herein
as the "PPE case".  This lawsuit had  initially  been  dismissed on a motion for
summary  judgment.  However,  the trial court  subsequently  vacated the earlier
decision  granting  summary  judgment to Park Place  Entertainment,  in order to
consider new evidence and allow additional  discovery  proceedings.  After these
proceedings  were completed,  the dismissal was  reinstated.  An appeal has been
taken and a brief has been filed by the Litigation Trust. The respondent's brief
was filed on June 9, 2005 and the  Litigation  Trust's  reply brief was filed on
July 12, 2005.  Oral  arguments on the appeal were heard on October 17, 2005. On
March 8, 2006, the Court of Appeals for the Second Circuit  vacated the judgment
in the  case.  It  determined  that  there was no  jurisdiction  over two of the
plaintiffs  in the case and  remanded it to the  District  Court for  additional
findings  as to the  jurisdiction  over the  remaining  plaintiff  and as to the


                                       10


possible  third  party  beneficiary  status of that  plaintiff  with  respect to
contracts entered into by the other plaintiffs.

      The District  Court held a hearing on April 30, 2006 and requested  briefs
on the third party beneficiary  issue, which were completed and filed by the end
of July. In addition, the parties entered into a stipulation agreeing to request
dismissal of the non-diverse  plaintiffs without prejudice and providing for the
Litigation  Trustees,  as diverse  parties  succeeding  to the  interests of the
non-diverse  plaintiffs,  to file a new complaint,  following which the District
Court  entered a decision  dismissing  the two  non-diverse  plaintiffs  without
prejudice.  In accordance with the stipulations,  the new complaint was filed on
August 23, 2006, and the new action was consolidated with the existing action on
October 10, 2006. An amended answer responsive to the new complaint was filed by
the defendant on November 2, 2006. The  Litigation  Trust has agreed that in any
such consolidated  lawsuit, the District Court's prior decisions and orders will
be  binding  upon  them  in  such  suit  to the  same  extent  as the  dismissed
plaintiffs,  i.e.  subject to their right to appeal any judgment based upon such
decisions  and  orders to the  United  States  Court of  Appeals  for the Second
Circuit.  We expect  the  District  Court to  re-enter a  judgment  against  the
plaintiffs and render a decision on the third party beneficiary issue.  Assuming
that the court does not require additional  hearings or briefs,  such a decision
may be  rendered  in the fourth  quarter  of 2006 or the first  quarter of 2007,
after which the Court of Appeals  will assign the case to a new panel of judges.
Additional  briefs and oral  arguments  may be required.  It is unlikely  that a
decision  on the appeal will be issued  prior to the second or third  quarter of
2007.

      The second lawsuit is Catskill  Development,  L.L.C.,  Mohawk  Management,
L.L.C., and Monticello Raceway Development Company,  L.L.C.,  Plaintiffs against
Gary Melius,  Ivan Kaufman,  Walter Horn,  President R.C. - St. Regis Management
Company,  et al,  Defendants.  (Index No. 891/03) (Supreme Court of the State of
New York  County of  Sullivan).  This  lawsuit  has been  discontinued  under an
agreement that permits it to be refiled at a future date without being barred by
the statute of  limitations.  Our purposes are the prosecution of our litigation
claims  through  the  recovery  of any  settlement  or final  judgments  and the
distribution of the net amount of any such recoveries to our beneficiaries.

      The administration of our Litigation Trust will involve the authentication
and payment of fees and  expenses for legal and related  services in  connection
with  our  litigation  claims,  reporting  and  regulatory  compliance  and  the
maintenance of litigation,  financial and  unit-holder  records.  Administrative
expenses,   exclusive  of  imputed  interest,  are  currently  estimated  to  be
approximately  $200,000 per year,  comprised of the fees of the  litigation  and
administrative  trustees,  auditors and accountants and other support  services.
Legal fees and other  expenses  involved in pursuing our  litigation  claims are
impossible  to predict  with any degree of accuracy.  No assurance  can be given
that the amounts available to us for the payment of such expenses under our line
of  credit  will be  sufficient  to carry our  litigation  claims  through  to a
successful  conclusion  or that  alternative  funds will be  available  for such
purpose.

      Our  unit-holders  will  only be  entitled  to the net  proceeds  from any
settlement or award,  if any, of our litigation  claims after the payment of our
expenses, the fees of our litigation trustees, any amounts outstanding under our
line of credit and  $7,500,000  to Empire  Resorts  for  reimbursement  of prior
expenses incurred in connection with our litigation claims.

      Under our agreement with counsel arguing the appeal, a portion of the fees
related to arguing  the appeal will be  contingent  on the  resulting  decision.
However,  these contingent fees do not relate to the additional matters relating
to jurisdiction  that arose subsequent to the initial briefing of the case. As a
result,  we currently  expect  significant  additional  expenses  related to the
appeal. We do not expect additional expenses related to a trial (which is itself
dependent  on the  outcome of the appeal)  until at least the second  quarter of
2007.


                                       11


      On June 1, 2004, we filed a Voluntary Discontinuance and Tolling Agreement
with respect to the second lawsuit.  Since there are many issues of fact and law
in the PPE case  which  relate to  matters  that are also at issue in the second
lawsuit,  we believe that,  as long as the right to recommence  the suit without
regard to the statute of limitations was preserved,  the  discontinuance of this
suit was  appropriate  in order to avoid the cost of  maintaining  two  separate
lawsuits.

RESULTS OF OPERATIONS

For the three  months  ended  September  30,  2006,  we  reported  a net loss of
$136,202. Included in these net losses are legal fees of $71,413, administrative
expenses of $40,815 and imputed  interest of $24,716,  offset by dividend income
of $742,  but no  proceeds  from any  litigation.  For the  three  months  ended
September  30, 2005,  we reported a net loss of  $177,507.  Included in this net
loss are legal fees of $119,363,  administrative expenses of $44,654 and imputed
interest of $13,689, offset by dividend income of $199, but no proceeds from any
litigation.

For the  nine  months  ended  September  30,  2006,  we  reported  a net loss of
$400,970.   Included   in  these  net  losses   are  legal  fees  of   $206,181,
administrative  expenses of $128,989 and imputed interest of $67,063,  offset by
dividend  income of $1,263,  but no proceeds from any  litigation.  For the nine
months ended September 30, 2005, we reported a net loss of $561,862. Included in
this net loss are legal fees of  $395,735,  administrative  expenses of $139,146
and imputed  interest of $28,562,  offset by dividend  income of $1,581,  but no
proceeds from any litigation.

The expenditures for legal fees in the first three quarters of 2006, as compared
with the comparable period for 2005,  reflect the level of activity necessary to
make  submissions  to the  District  Court in response  to the issues  raised on
remand as compared with the preparation of briefs for submission to the Court of
Appeals  for the  Second  Circuit  first half of 2005.  However,  the delays and
additional submissions resulting from the remand have significantly added to the
cost of the litigation.

Administrative  expenses,  excluding legal fees, decreased slightly in the first
three  quarters  of 2006 as compared  with the first three  quarters of 2005 due
principally to reductions in expenses  associated with accounting fees, transfer
agent fees and other  administrative  expenses.  Imputed  interest  expense  has
increased significantly due to the additional withdrawals on the line of credit.


LIQUIDITY AND CAPITAL RESOURCES

      Empire Resorts has provided us with an irrevocable line of credit of up to
$2,500,000 to provide funds to pay any and all of our expenses  permitted  under
the  Declaration of Trust.  Although no interest is payable on amounts  advanced
under  our  line  of  credit,  the  Litigation  Trust  imputes  interest  on the
borrowings  at Empire  Resorts  borrowing  rate (8% per annum at  September  30,
2006).  Amounts outstanding under our line of credit are to be repaid by us from
proceeds received from any settlement or award in connection with our litigation
claims after payment of an amount  necessary to pay our Litigation  Trustees the
fees for their services as set forth in the Declaration of Trust.  Repayments of
amounts  outstanding  under our line of credit may be made as a whole or in part
from  time to time at any time  without  notice.  We may  reborrow  any  amounts
repaid.  Our line of credit  will  remain in full  force  and  effect  until our
termination.

      Empire  Resorts  is a holding  company,  owning all the  capital  stock or
membership  interests of certain  other  entities.  Empire  Resorts is therefore
dependent  on these other  entities to pay  dividends or make  distributions  in
order to generate  internal cash flow and to satisfy its obligations,  including
its obligations  under our line of credit.  There can be no assurance,  however,
that these other entities will generate  enough revenue to pay cash dividends or


                                       12


make cash  distributions.  In addition,  these entities may enter into contracts
that limit or prohibit their ability to pay dividends or make distributions.

      Empire Resorts had operating revenue of approximately  $9.7, $45 and $86.8
million  for  the  fiscal  years  ended  December  31,  2003,   2004  and  2005,
respectively,  and sustained net operating losses of  approximately  $6.5, $12.7
and $18.5 million,  respectively,  during such periods.  Although Empire Resorts
significantly increased its level of operations during 2005 and 2006, it has yet
to demonstrate that such operations can be profitable.  Therefore,  there can be
no assurance that Empire  Resorts will have the ability to meet its  obligations
under our line of credit.

ITEM 3.  CONTROLS AND PROCEDURES

(a) The Litigation  Trust carried out an evaluation,  under the  supervision and
with the participation of the Litigation Trust's management, including Joseph E.
Bernstein  (acting  Chief  Executive  Officer) and Paul A. deBary  (acting Chief
Financial  Officer),   the  Litigation  Trust's  Litigation  Trustees,   of  the
effectiveness of the design and operation of the Litigation Trust's  "disclosure
controls and procedures",  as such term is defined in Exchange Act Rule 15d-15e,
as of the end of the period covered by this report.  Based upon that evaluation,
Messrs.  Bernstein  and  deBary  have  concluded  that  the  Litigation  Trust's
disclosure  controls and procedures  were effective as of the end of the periods
covered by this report to provide reasonable assurance that information required
to be  disclosed  by the  Litigation  Trust in reports  that it files or submits
under the Exchange Act is recorded,  processed,  summarized and reported  within
the time periods specified in SEC rules and forms.

(b) There have been no significant  changes in the Litigation  Trust's  internal
controls or in other  factors  that could  significantly  affect the  Litigation
Trust's  internal  controls  subsequent to the date the Litigation Trust carried
out this evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

      A control system,  no matter how well conceived and operated,  can provide
only  reasonable,  not absolute  assurance  that the  objectives  of the control
system are met. Because of the inherent  limitations in all control systems,  no
internal  controls can provide  absolute  assurance  that all control issues and
instances of fraud, if any, within a company have been detected.


                                       13


PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

      We are a statutory  trust created under  Delaware law. Our formation was a
condition to the  consolidation  of Empire  Resorts with MRMI,  MCM,  MRDC,  and
Mohawk. Also, as a condition to that consolidation,  each of Catskill,  MRDC and
Mohawk,  agreed to  assign to us all of their  claims  under or  related  to the
alienation and frustration of their  agreements and business  relations with the
St. Regis Mohawk Tribe. That assignment included rights to any proceeds from any
settlement or award that may arise from any  litigation  relating to that claim.
Our  litigation  claims  arise from the  efforts of each of  Catskill,  MRDC and
Mohawk to develop with the St. Regis Mohawk Tribe a gaming casino in Monticello,
New York.  We spent several  years and  substantial  funds to develop and obtain
required  approvals  for the  casino.  Subsequently,  Park  Place  Entertainment
Corporation,  the world's largest gaming corporation and Atlantic City's largest
casino  operator,  entered into an agreement  providing for the St. Regis Mohawk
Tribe to commit its future casino development  efforts exclusively to Park Place
Entertainment  Corporation.  That agreement  conflicted  with the Mohawk Tribe's
agreements with Catskill, MRDC and Mohawk.

      There  is  one  lawsuit  now  pending  and  one  lawsuit   that  has  been
discontinued.  The  first  lawsuit  is  Catskill  Development,   L.L.C.,  Mohawk
Management,   L.L.C.,  and  Monticello  Raceway  Development  Company,   L.L.C.,
Plaintiffs. v. Park Place Entertainment  Corporation,  Defendant.  (Civil Action
No. 00CIV8660  (CM)(GAY)) (United States District Court Southern District of New
York).  This  lawsuit  had  initially  been  dismissed  on a motion for  summary
judgment. However, the trial court vacated the earlier decision granting summary
judgment to Park Place  Entertainment,  in order to allow  consideration  of new
evidence and additional  discovery  proceedings.  Following  those  proceedings,
judgment in favor of the defendant was reinstated.  An appeal has been taken and
briefs  have been  filed by the  Litigation  Trust.  In  preparing  the brief on
appeal,  our counsel became aware of a case that was decided  shortly before the
plaintiffs  brought  the  original  complaint.  The  effect of this case is that
jurisdiction may not be found to exist for two of the three plaintiff  entities.
We made the Court of Appeals aware of this circumstance. If the Court determines
that the federal courts lack  jurisdiction  over these  plaintiffs,  they may be
required to pursue their claims in the New York courts.  This could increase the
expense  involved,  and result in additional delay, in prosecuting their claims.
The  respondent's  brief was filed on June 9,  2005 and the  Litigation  Trust's
reply brief was filed on July 12, 2005.  Oral arguments on the appeal were heard
on October 17, 2005. At that time,  one member of the panel  questioned  whether
there were factual issues that needed to be determined before the jurisdictional
issues could be resolved.  On March 8, 2006,  the  Litigation  Trust  received a
Summary  Order from the United  States  Court of Appeals for the Second  Circuit
with  regard  to  the  Litigation   Trust's  appeal  in  the  case  of  Catskill
Development,   L.L.C.,   Mohawk  Management,   L.L.C.,  and  Monticello  Raceway
Development  Company,  L.L.C.,  Plaintiffs.  v.  Harrah's  Entertainment,  Inc.,
Defendant.

      The  unpublished  order  remanded  the  case  to the  District  Court  for
additional  development  of the record.  In the  appeal,  the  Litigation  Trust
brought to the  attention  of the court a recent  decision  which  measured  the
diversity of a limited  liability  company  according to the  citizenship of its
individual members, rather than the state of its organization.  If this decision
were found to be a precedent,  the  Litigation  Trust conceded that diversity of
citizenship sufficient to establish subject matter jurisdiction in the case with
respect to Catskill and Mohawk would not exist.  However,  the Litigation  Trust
argued that this decision has been  inconsistently  applied and therefore should
not be  followed.  The Court of Appeals  has  rejected  the  Litigation  Trust's
arguments in this respect.

      The Litigation Trust also requested the Court to preserve  jurisdiction in
the case by dismissing the non-diverse  plaintiffs and proceeding to rule on the
issues on appeal as they apply to the remaining  plaintiff.  However,  the Court
found the record to be  insufficient  to determine  the ownership of MRDC on the
date of the commencement of the action. Moreover, the Court felt that additional
findings of fact were required for the court to determine  whether the dismissal
of the non-diverse plaintiffs would result in prejudice to any of the parties.


                                       14


      In remanding the case, the Court of Appeals vacated the original judgment,
directing  that if the District Court  determined  that MRDC was a diverse party
whose jurisdiction  should be preserved,  it could consider whether to reinstate
all or part of its prior judgment.  In addition,  the Court of Appeals indicated
that the trial court  should make a  determination  as to whether the  remaining
plaintiff  would be a third party  beneficiary  of the  contracts  made with the
non-diverse parties under New York law.

      The District  Court held a hearing on April 30, 2006 and requested  briefs
on the third party beneficiary  issue, which were completed and filed by the end
of July. In addition, the parties entered into a stipulation agreeing to request
dismissal of the non-diverse  plaintiffs without prejudice and providing for the
Litigation  Trustees,  as diverse  parties  succeeding  to the  interests of the
non-diverse  plaintiffs,  to file a new complaint,  following which the District
Court  entered a decision  dismissing  the two  non-diverse  plaintiffs  without
prejudice.  In accordance with the stipulations,  the new complaint was filed in
July, 2006 and the new action was  consolidated  with the existing  action.  The
Litigation Trust has agreed that in any such consolidated  lawsuit, the District
Court's prior decisions and orders will be binding upon them in such suit to the
same extent as the dismissed  plaintiffs,  i.e. subject to their right to appeal
any judgment  based upon such decisions and orders to the United States Court of
Appeals  for the Second  Circuit.  We expect the  District  Court to  re-enter a
judgment  against  the  plaintiffs  and  render a  decision  on the third  party
beneficiary issue.  Assuming that the court does not require additional hearings
or briefs,  such a decision  may be  rendered  in the fourth  quarter of 2006 or
first quarter of 2007,  after which the Court of Appeals will assign the case to
a new panel of judges.  Additional briefs and oral arguments may be required. It
is unlikely  that a decision on the appeal will be issued prior to the second or
third quarter of 2007.

      The second lawsuit is Catskill  Development,  L.L.C.,  Mohawk  Management,
L.L.C., and Monticello Raceway Development Company, L.L.C., Plaintiffs.  against
Gary Melius,  Ivan Kaufman,  Walter Horn,  President R.C. - St. Regis Management
Company,  et al,  Defendants.  (Index No. 891/03) (Supreme Court of the State of
New York  County of  Sullivan).  This  lawsuit  has been  discontinued  under an
agreement that permits it to be refiled at a future date without being barred by
the statute of  limitations.  Our purposes are the prosecution of our claims now
through the recovery of any settlement or final  judgments and the  distribution
of the net amount of any such recoveries to our beneficiaries.

ITEM 6.  EXHIBITS

a:  Exhibits

      *31.1 Certification of Acting Chief Executive  Officer pursuant to Section
            302 of the Sarbanes-Oxley Act of 2002.

      *31.2 Certification of Acting Chief Financial  Officer pursuant to Section
            302 of the Sarbanes-Oxley Act of 2002.

      *32.1 Certification  of the Acting Chief Executive  Officer pursuant to 18
            U.S.C.   Section  1350  adopted  pursuant  to  Section  906  of  the
            Sarbanes-Oxley Act of 2002.

      *32.2 Certification  of the Acting Chief Financial  Officer pursuant to 18
            U.S.C.   Section  1350  adopted  pursuant  to  Section  906  of  the
            Sarbanes-Oxley Act of 2002.

      *Filed herewith


                                       15


                                   SIGNATURES

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

                                            CATSKILL LITIGATION TRUST
                                            (Registrant)

DATE:  November 10, 2006                    By: /s/ Joseph E. Bernstein
                                                --------------------------------
                                                Joseph E. Bernstein
                                                Litigation Trustee


DATE:  November 10, 2006                    By: /s/ Paul A. deBary
                                                --------------------------------
                                                Paul A. deBary
                                                Litigation Trustee


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