# 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 September 30, 2004

OR

# [   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-17589

NTS-PROPERTIES VII, LTD.(Exact name of registrant as specified in its charter)

|Florida                         | 61-1119232                          
|------------------------------- | ------------------------------------
|(State or other jurisdiction of | (I.R.S. Employer Identification No.)
|incorporation or organization)  |                                     

10172 Linn Station Road, Louisville, Kentucky 40223(Address of principal executive offices)

(502) 426-4800(Registrants telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.      Yes [X]    No [   ]

Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).     Yes [   ]    No [X]

---

# TABLE OF CONTENTS

| |  |  |  |      
| |  |  |  | -----
| |  |  |  | Pages

# PART I  FINANCIAL INFORMATION

|        |  |                                                                                                |  |      
|------- |  | ---------------------------------------------------------------------------------------------- |  | -----
|Item 1. |  | Financial Statements (Unaudited)                                                              
|       
|        |  | Balance Sheets as of September 30, 2004 and December 31, 2003                                  |  | 4    
|       
|        |  | Statement of Partners' Equity as of September 30, 2004                                         |  | 4    
|       
|        |  | Statements of Operations for the Three and Nine Months
      Ended September 30, 2004 and 2003 |  | 5    
|       
|        |  | Statements of Cash Flows for the Nine Months
      Ended September 30, 2004 and 2003           |  | 6    
|       
|        |  | Notes to Financial Statements                                                                  |  | 7-13 
|       
|Item 2. |  | Management's Discussion and Analysis of Financial
     Condition and Results of Operations     |  | 14-21
|       
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  | 21   
|       
|Item 4. |  | Controls and Procedures                                                                        |  | 21   
|       

# PART II  OTHER INFORMATION

|            |  |  |  |      
|----------- |  |  |  | -----
|Items 1 - 6 |  |  |  | 22-24
|           
|Signatures  |  |  |  | 25   

2

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Some of the statements included in
this quarterly report on Form 10-Q, particularly those included in Part I, Item 2 
Managements Discussion and Analysis of Financial Condition and Results of Operations
(MD&A), may be considered forward-looking statements because
the statements relate to matters which have not yet occurred. For example, phrases such as
we anticipate, believe or expect indicate that it is
possible that the event anticipated, believed or expected may not occur. If these events
do not occur, the result which we expected also may, or may not, occur in a different
manner, which may be more or less favorable to us. We do not undertake any obligation to
update these forward-looking statements.

Any forward-looking statements
included in MD&A, or elsewhere in this report, reflect our general partners best
judgment based on known factors, but involve risks and uncertainties. Actual results could
differ materially from those anticipated in any forward-looking statements as a result of
a number of factors, including but not limited to those described in our filings with the
Securities and Exchange Commission, particularly our annual report on Form 10-K for the
year ended December 31, 2003. Any forward-looking information provided by us pursuant to
the safe harbor established by the Private Securities Litigation Reform Act of 1995 should
be evaluated in the context of these factors.

3

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# PART I  FINANCIAL
INFORMATION Item 1  Financial Statements

# NTS-PROPERTIES VII, LTD.
BALANCE SHEETS

`As of               As of
                                                                  September 30,       December 31,
                                                                       2004               2003
                                                                ------------------  -----------------
                                                                   (UNAUDITED)
ASSETS
Cash and equivalents                                           $           206,108 $          263,655
Cash and equivalents - restricted                                           27,150             26,625
Accounts receivable, net                                                    12,115              4,577
Land, buildings and amenities, net                                       6,796,557          7,091,886
Investment in and advances to joint venture                                839,077            789,567
Other assets                                                                29,263             46,021
                                                                ------------------  -----------------

      TOTAL ASSETS                                             $         7,910,270 $        8,222,331
                                                                ==================  =================

LIABILITIES AND PARTNERS' EQUITY
Mortgage payable                                               $         3,219,830 $        3,339,017
Accounts payable and accrued expenses                                      166,168            184,617
Security deposits                                                           26,500             26,700
Other liabilities                                                           83,688             22,572
                                                                ------------------  -----------------

      TOTAL LIABILITIES                                                  3,496,186          3,572,906

COMMITMENTS AND CONTINGENCIES (Note 10)

PARTNERS' EQUITY                                                         4,414,084          4,649,425
                                                                ------------------  -----------------

TOTAL LIABILITIES AND PARTNERS' EQUITY                         $         7,910,270 $        8,222,331
                                                                ==================  =================`

# NTS-PROPERTIES VII, LTD.
STATEMENT OF PARTNERS EQUITY 
(UNAUDITED)

`Limited            General
                                                   Partners            Partner              Total
                                               -----------------  ------------------  ------------------
PARTNERS' EQUITY/(DEFICIT)
Capital contributions, net of offering costs  $       10,935,700 $               100 $        10,935,800
Net loss - prior years                                (3,074,747)            (31,057)         (3,105,804)
Net loss - current year                                 (232,988)             (2,353)           (235,341)
Cash distributions declared to date                   (2,717,046)            (27,445)         (2,744,491)
Repurchase of limited partnership interests             (436,080)                 --            (436,080)
                                               -----------------  ------------------  ------------------

BALANCES ON SEPTEMBER 30, 2004                $        4,474,839 $           (60,755)$         4,414,084
                                               =================  ==================  ==================`

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

4

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# NTS-PROPERTIES VII, LTD.
STATEMENTS OF OPERATIONS 
(UNAUDITED)

`Three Months Ended              Nine Months Ended
                                                               September 30,                  September 30,
                                                       -----------------------------  -----------------------------
                                                            2004           2003           2004            2003
                                                       --------------  -------------  -------------  --------------
REVENUES
Rental income                                         $       408,219 $      398,423 $    1,178,939 $     1,257,056
                                                       --------------  -------------  -------------  --------------

     TOTAL REVENUES                                           408,219        398,423      1,178,939       1,257,056
                                                       --------------  -------------  -------------  --------------

EXPENSES
Operating expenses                                             98,310        101,301        298,526         324,603
Operating expenses - affiliated                                70,278         65,344        209,299         205,503
Management fees                                                19,917         19,514         59,013          63,811
Real estate taxes                                              19,908         15,924         59,724          59,616
Professional and administrative expenses                       65,481         38,244        261,431         162,066
Professional and administrative expenses - affiliated          37,489         34,757        107,208          98,193
Depreciation and amortization                                 101,706        102,557        306,672         305,102
                                                       --------------  -------------  -------------  --------------

     TOTAL OPERATING EXPENSES                                 413,089        377,641      1,301,873       1,218,894
                                                       --------------  -------------  -------------  --------------

OPERATING (LOSS) INCOME                                        (4,870)        20,782       (122,934)         38,162

Interest and other income                                         500          2,258          2,829           5,150
Interest expense                                              (60,800)       (64,556)      (182,620)       (190,925)
Loss on disposal of assets                                         --             --         (1,287)             --
Income from investment in joint venture                        14,506          7,043         68,671          63,030
                                                       --------------  -------------  -------------  --------------

Net loss                                              $       (50,664)$      (34,473)$     (235,341)$       (84,583)
                                                       ==============  =============  =============  ==============

Net loss allocated to the limited partners            $       (50,157)$      (34,128)$     (232,988)$       (83,737)
                                                       ==============  =============  =============  ==============

Net loss per limited partnership interest             $         (0.09)$        (0.06)$        (0.42)$         (0.15)
                                                       ==============  =============  =============  ==============

Weighted average number of limited
  partnership interests                                       552,236        552,236        552,236         552,236
                                                       ==============  =============  =============  ==============`

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

5

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# NTS-PROPERTIES VII, LTD.
STATEMENTS OF CASH FLOWS 
(UNAUDITED)

`Nine Months Ended
                                                                              September 30,
                                                                  --------------------------------------
                                                                        2004                 2003
                                                                  -----------------    -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                       $           (235,341)$            (84,583)
Adjustments to reconcile net loss to net cash provided by
  operating activities:
    Depreciation and amortization                                           309,013              307,442
    Loss on disposal of assets                                                1,287                   --
    Income from investment in joint venture                                 (68,671)             (63,030)
    Changes in assets and liabilities:
      Cash and equivalents - restricted                                        (525)                 550
      Accounts receivable                                                    (7,538)               2,633
      Other assets                                                           14,417               (9,424)
      Accounts payable and accrued expenses                                 (18,449)              69,496
      Security deposits                                                        (200)              (2,150)
      Other liabilities                                                      61,116               57,642
                                                                  -----------------    -----------------

     Net cash provided by operating activities                               55,109              278,576
                                                                  -----------------    -----------------

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and amenities                                  (12,630)            (198,074)
Distributions from (contributions to) joint venture, net                     19,161              (39,298)
                                                                  -----------------    -----------------

     Net cash provided by (used in) investing activities                      6,531             (237,372)
                                                                  -----------------    -----------------

CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage payable                                     (119,187)            (116,626)
                                                                  -----------------    -----------------

     Net cash used in financing activities                                 (119,187)            (116,626)
                                                                  -----------------    -----------------

     Net decrease in cash and equivalents                                   (57,547)             (75,422)

CASH AND EQUIVALENTS, beginning of period                                   263,655              382,533
                                                                  -----------------    -----------------

CASH AND EQUIVALENTS, end of period                            $            206,108 $            307,111
                                                                  =================    =================

Interest paid on a cash basis                                  $            182,016 $            190,329
                                                                  =================    =================`

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

6

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# NTS-PROPERTIES VII, LTD.
NOTES TO FINANCIAL STATEMENTS 
(UNAUDITED)

The unaudited financial statements
included herein should be read in conjunction with NTS-Properties VII, Ltd.s 2003
annual report on Form 10-K as filed with the Securities and Exchange Commission on March
26, 2004. In the opinion of our general partner, all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation have been made to the
accompanying financial statements for the three and nine months ended September 30, 2004
and 2003. The results of operations for the interim periods are not necessarily indicative
of the results that may be expected for the full year or any other interim period. As used
in this quarterly report on Form 10-Q the terms we, us or
our, as the context requires, may refer to NTS-Properties VII, Ltd. or its
interests in its properties and joint venture.

# Note 1 
Consolidation Policy and Joint Venture Accounting

The financial statements include the
accounts of all wholly-owned properties. Intercompany transactions and balances have been
eliminated. The less than 50% owned joint venture is accounted for under the equity
method.

# Note 2  Use of
Estimates in the Preparation of Financial Statements

The preparation of financial
statements in accordance 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.

# Note 3 
Concentration of Credit Risk

We own and operate, through a joint
venture, one commercial rental property  Blankenbaker Business Center 1A, in
Louisville, Kentucky. The sole tenant which occupies 100% of the property is a business
which has operations in the Louisville area. We also own and operate two apartment
communities  The Park at the Willows, in Louisville, Kentucky and Park Place
Apartments Phase II, in Lexington, Kentucky.

Our financial instruments that are
exposed to concentrations of credit risk consist of cash and equivalents. We maintain our
cash accounts primarily with banks located in Kentucky. Cash balances are insured by the
FDIC up to $100,000 per bank account. We may at times, in certain accounts, have deposits
in excess of $100,000.

7

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# Note 4  Cash and
Equivalents

Cash and equivalents include cash on
hand and short-term, highly liquid investments with initial maturities of three months or
less. We have a cash management program which provides for the overnight investment of
excess cash balances. Under an agreement with a bank, excess cash is invested in a
repurchase agreement for U.S. government or agency securities each night. As of September
30, 2004, there were no available cash balances to transfer into our overnight investment.

# Note 5  Cash and
Equivalents  Restricted

Cash and equivalents 
restricted represents funds received for residential security deposits.

# Note 6  Basis of
Property and Depreciation

Land, buildings and amenities are
stated at historical cost, less accumulated depreciation. Costs directly associated with
the acquisition, development and construction of a project are capitalized. Depreciation
is computed using the straight-line method over the estimated useful lives of the assets
which are 7-30 years for land improvements, 7-30 years for buildings and improvements and
5-30 years for amenities. The aggregate cost of our properties for federal tax purposes is
approximately $12,847,000.

Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, specifies circumstances in which certain long-lived assets must
be reviewed for impairment. If the carrying amount of an asset exceeds the sum of its
expected future cash flows, the assets carrying value must be written down to fair
value. There were no impairment losses during any of the periods presented.

# Note 7  Investment
in Joint Venture

Blankenbaker Business Center Joint
Venture (the Joint Venture) was organized on December 28, 1990, by us and
NTS-Properties Plus Ltd. to own and operate Blankenbaker Business Center 1A (BBC
1A) and to acquire an approximately 2.49 acre parking lot that was being leased by
the business center from an affiliate of our general partner. On August 16, 1994, the
Joint Venture agreement was amended to admit NTS-Properties IV to the Joint Venture.

For the three months ended September
30, 2004 and 2003, BBC 1A had total revenues of $237,253 and $237,253, respectively, and
net income of $46,286 and $22,472, respectively.

For the nine months ended September
30, 2004 and 2003, BBC 1A had total revenues of $711,758 and $711,758, respectively, and
net income of $219,117 and $201,117, respectively.

8

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# Note 8  Mortgage
Payable

Mortgage payable consists of the
following:

`September 30,        December 31,
                                                                        2004                 2003
                                                                  -----------------    -----------------
Mortgage payable to an insurance company in monthly
installments, bearing interest at a fixed rate of 7.37%, due
October 15, 2012, secured by land and buildings.               $          3,219,830 $          3,339,017
                                                                  =================    =================`

Our mortgage may be prepaid but is
subject to a yield-maintenance premium.

As of September 30, 2004, the fair value
of long-term debt was approximately $3,398,000, based on the borrowing rates currently
available to us for mortgages with similar terms and average maturities.

# Note 9  Related
Party Transactions

Pursuant to an agreement with us, NTS
Development Company, an affiliate of our General Partner, receives property management
fees on a monthly basis. The monthly fees are equal to 5% of the gross revenues from our
apartment communities. Also pursuant to an agreement, NTS Development Company receives a
repair and maintenance fee equal to 5.9% of costs incurred which relates to capital
improvements and major repair and renovation projects. These repair and maintenance fees
are capitalized as part of land, buildings and amenities.

We were charged the following amounts
from NTS Development Company for the nine months ended September 30, 2004 and 2003. These
charges include items which have been expensed as operating expenses  affiliated or
professional and administrative expenses  affiliated and items which have been
capitalized as other assets or as land, buildings and amenities.

`Nine Months Ended
                                                                             September 30,
                                                                ----------------------------------------
                                                                       2004                 2003
                                                                -------------------  -------------------

Property management fees                                       $             59,013 $             63,811
                                                                -------------------  -------------------

Property management                                                         123,304              118,249
Leasing                                                                      18,704               21,898
Administrative - operating                                                   65,204               59,485
Other                                                                         2,087                5,871
                                                                -------------------  -------------------

     Total operating expenses - affiliated                                  209,299              205,503
                                                                -------------------  -------------------

Professional and administrative expenses - affiliated                       107,208               98,193
                                                                -------------------  -------------------

Repair and maintenance fees                                                      --               10,982
                                                                -------------------  -------------------

     Total related party transactions capitalized                                --               10,982
                                                                -------------------  -------------------

Total related party transactions                               $            375,520 $            378,489
                                                                ===================  ===================`

9

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# Note 10 
Commitments and Contingencies

As an owner of real estate, we are
subject to various environmental laws of federal, state and local governments. Our
compliance with existing laws has not had a material adverse effect on our financial
condition or results of operations. However, we cannot predict the impact of new or
changed laws or regulations on our current properties or on properties that we may acquire
in the future.

We are jointly and severally liable
under the mortgage loan agreement for the BBC 1A debt. The outstanding balance on this
mortgage on September 30, 2004 is $745,135. Our financial statements do not reflect a
liability for this mortgage.

Litigation

On December 12, 2001, three
individuals filed an action in the Superior Court of the State of California for the
County of Contra Costa (the Superior Court) originally captioned Buchanan,
et al. v. NTS-Properties Associates, et al. (Case No. C 01-05090) against the
general partners (the General Partners) of NTS-Properties III, NTS-Properties
IV, NTS-Properties V, NTS-Properties VI and NTS-Properties VII, Ltd. (the
Partnerships), as well as several individuals and entities affiliated with us.
The action purported to bring claims on behalf of a class of limited partners. These
claims were based on, among other things, tender offers made by the Partnerships and an
affiliate of the General Partners, as well as the operation of the Partnerships by the
General Partners. The plaintiffs alleged, among other things, that the prices at which
limited partnership interests were purchased in these tender offers were too low. The
plaintiffs sought monetary damages and equitable relief, including an order directing the
disposition of the properties owned by the Partnerships and the distribution of the
proceeds. No amounts have been accrued for the settlement of this action in our financial
statements.

On February 27, 2003, two individuals
filed a class and derivative action in the Circuit Court of Jefferson County, Kentucky
captioned Bohm, et al. v. J.D. Nichols, et al.(Case No. 03-CI-01740) against
certain of the General Partners and several individuals and entities affiliated with us.
The complaint was amended to include the general partner of NTS-Properties III and the
general partner of NTS-Properties Plus Ltd., which is no longer in existence. In the
amended complaint, the plaintiffs purport to bring claims on behalf of a class of limited
partners and derivatively on behalf of us and the Partnerships based on alleged
overpayment of fees, prohibited investments, improper failures to make distributions,
purchases of limited partnerships interests at insufficient prices and other violations of
the limited partnership agreements. The plaintiffs are seeking, among other things,
compensatory and punitive damages in an unspecified amount, an accounting, the appointment
of a receiver or liquidating trustee, the entry of an order of dissolution against the
Partnerships, a declaratory judgment and injunctive relief. No amounts have been accrued
for the settlement of this action in our financial statements. Our general partner and
legal counsel believe that this action is without merit and are vigorously defending it.

10

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On June 20, 2003, the General
Partners reached an agreement in principle with the representatives of the class of
plaintiffs to settle the Buchanan litigation. This agreed upon settlement includes
releases for all of the parties for all of the claims asserted in the Buchanan
litigation and the Bohmlitigation. As part of the agreed upon settlement, the
General Partners agreed to pursue a merger of the Partnerships and other real estate
entities affiliated with the General Partners into a newly-formed entity named NTS Realty
Holdings Limited Partnership (NTS Realty). NTS Development Company agreed to
pay the Partnerships $1,500,000 on the closing date of the merger. We expect to receive
$27,000 of this payment.

On December 5, 2003, the General
Partners, certain of their affiliates and the class of plaintiffs in the Buchanan
litigation jointly filed a Stipulation and Agreement of Settlement (the
Settlement Agreement) with the Superior Court. The Settlement Agreement sets
forth the terms of the agreed upon settlement the parties reached on June 20, 2003. On
February 26, 2004, the Superior Court preliminarily approved the Settlement Agreement as
within the range of reasonableness and that it is fair, just and adequate to the class of
plaintiffs. The Superior Court scheduled a hearing to finally determine whether the
Settlement Agreement is in the best interests of the class of plaintiffs and whether the
Buchananlitigation should be dismissed with prejudice.

On March 2, 2004, we, along with all
defendants, filed a Motion to Dismiss the Bohm litigation. After the Motion to
Dismiss was fully briefed, the settlement agreement in the Buchanan litigation
received final court approval. The Circuit Court of Jefferson County, Kentucky, instructed
the plaintiffs in the Bohm litigation to file an amended complaint in light of the
approved settlement of the Buchanan litigation. The plaintiffs in the Bohm
litigation filed a corrected Second Amended Complaint on August 11, 2004. We, along with
all defendants, filed a Motion to Strike the corrected Second Amended Complaint. A hearing
on this motion is scheduled for January 14, 2005. Our general partner believes that the
claims asserted in the corrected Second Amended Complaint have no merit.

On May 6, 2004, the Superior Court
granted its final approval of the Settlement Agreement. At the final hearing, any member
of the class of plaintiffs was given the opportunity to object to the final approval of
the Settlement Agreement, the entry of a final judgment dismissing with prejudice the
Buchananlitigation, or an application of an award for attorneys fees and
expenses to plaintiffs counsel. The Superior Courts order provides, among
other things, that: (1) the Settlement Agreement, and all transactions contemplated
thereby, including the proposed merger of the Partnerships into NTS Realty, are fair,
reasonable and adequate, and in the best interests of the class of plaintiffs; (2) the
plaintiffs complaint and each and every cause of action and claim set forth therein
is dismissed with prejudice; (3) each class member is barred from transferring, selling or
otherwise disposing of (other than by operation of law) their interests until the earlier
of the closing date of the merger, the termination of the settlement or June 30, 2004; and
(4) each class member who requested to be excluded from the settlement released their
claims in the Bohm litigation.

11

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On June 11, 2004, Joseph Bohm and
David Duval, class members who objected to the Settlement Agreement but were overruled by
the Superior Court, filed an appeal in the Court of Appeals of the State of California,
first Appellate District. Our general partner believes that this appeal has no merit and
intends to defend it and the decision of the Superior Court.

Under an indemnification agreement
with our general partner, we are responsible for the costs of defending any litigation.
For the nine months ended September 30, 2004 and 2003, our share of the legal costs for
theBuchanan and Bohm litigations was approximately $82,000 and $19,000,
respectively, which was included in our professional and administrative expenses.

We do not believe there is any other
litigation threatened against us other than routine litigation arising out of the ordinary
course of business, some of which is expected to be covered by insurance, none of which is
expected to have a material effect on our financial position or results of operations,
except as discussed herein.

Proposed Merger

As part of the Settlement Agreement,
our general partner and the general partners of the four public partnerships affiliated
with us, have agreed to pursue a merger of the partnerships and several other affiliated
real estate entities into NTS Realty. The merger is subject to, among other things,
approval by a majority of the limited partner interests in each partnership. For the nine
months ended September 30, 2004 and 2003, our share of the legal and professional fees for
the proposed merger was approximately $132,000 and $31,000, respectively, which was
included in our professional and administrative expenses.

On February 4, 2004, NTS Realty filed
a joint consent solicitation statement/prospectus on Form S-4 with the Securities and
Exchange Commission. The solicitation statement/prospectus presents the merger of the
Partnerships with NTS Realty. Concurrent with the merger, ORIG, LLC, a Kentucky limited
liability company, which is affiliated with our general partner, will contribute
substantially all its real estate assets and all of its liabilities to NTS Realty. NTS
Realty filed Amendment No. 1 on June 18, 2004, Amendment No. 2 on August 13, 2004 and
Amendment No. 3 on September 30, 2004.

On October 25, 2004 and October 27,
2004, NTS Realty filed Amendment No. 4 and Amendment No. 5, respectively, to its
registration statement on Form S-4, which includes a joint consent solicitation
statement/prospectus, with the Securities and Exchange Commission to seek approval of the
merger of the Partnerships into NTS Realty. The general partners of the Partnerships
agreed to pursue a merger of the Partnerships in the Stipulation and Agreement of
Settlement that was jointly filed by the general partners, along with certain of their
affiliates, with the class of plaintiffs in the action originally captioned Buchanan, et al. v.
NTS-Properties Associates, et al. (Case No. C 01-05090).

12

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On October 27, 2004, the Securities
and Exchange Commission signed an order declaring NTS Realtys registration statement
to be effective and the Partnerships began mailing the joint consent solicitation
statement/prospectus to their respective limited partners.

# Note 11  Segment
Reporting

Our reportable operating segments
include only one segment  Apartment Community Operations.

13

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# Item 2 
Managements Discussion and Analysis of Financial Condition and Results of Operations

Managements Discussion and
Analysis of Financial Condition and Results of Operations should be read in conjunction
with the Financial Statements in Item 1 and the cautionary statements below.

# Critical Accounting
Policies

General

A critical accounting policy is one
that would materially affect our operations or financial condition, and requires
management to make estimates or judgments in certain circumstances. These judgments often
result from the need to make estimates about the effect of matters that are inherently
uncertain. Critical accounting policies discussed in this section are not to be confused
with accounting principles and methods disclosed in accordance with U.S. generally
accepted accounting principles (GAAP). GAAP requires information in financial
statements about accounting principles, methods used and disclosures pertaining to
significant estimates. The following disclosure discusses judgments known to management
pertaining to trends, events or uncertainties known which were taken into consideration
upon the application of those policies and the likelihood that materially different
amounts would be reported upon taking into consideration different conditions and
assumptions.

Impairment and Valuation

Statement of Financial Accounting
Standards (SFAS) No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets, specifies circumstances in which certain long-lived assets must
be reviewed for impairment. If the carrying amount of an asset exceeds the sum of its
expected future cash flows, the assets carrying value must be written down to fair
value. In determining the value of an investment property and whether the investment
property is impaired, management considers several factors such as projected rental and
vacancy rates, property operating expenses, capital expenditures and interest rates. The
capitalization rate used to determine property valuation is based on the market in which
the investment property is located, length of leases, tenant financial strength, the
economy in general, demographics, environment, property location, visibility, age and
physical condition among others. All of these factors are considered by management in
determining the value of any particular investment property. The value of any particular
investment property is sensitive to the actual results of any of these factors, either
individually or taken as a whole. If the actual results differ from managements
judgment, the valuation could be negatively or positively affected.

14

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Recognition of Rental
Income

Our apartment communities have
operating leases with apartment residents with terms generally of twelve months or less.
We recognize rental revenue related to these leases on an accrual basis when due from
residents. In accordance with our standard lease terms, rental payments are generally due
on a monthly basis.

Cost Capitalization and
Depreciation Policies

We review all expenditures and
capitalize any item exceeding $1,000 deemed to be an upgrade or a tenant improvement with
an expected useful life greater than one year. Land, buildings and amenities are stated at
cost. Depreciation expense is computed using the straight-line method over the estimated
useful lives of the assets. Buildings and improvements have estimated useful lives between
7-30 years, land improvements have estimated useful lives of between 7-30 years and
amenities have estimated useful lives between 5-30 years.

# Results of Operations

The following tables include our
selected summarized operating data for the three and nine months ended September 30, 2004
and 2003. This data is presented to provide assistance in identifying trends in our
operating results and other factors affecting our business. This data should be read in
conjunction with our financial statements, including the notes thereto, in Part I, Item 1
of this report.

`Three Months Ended              Nine Months Ended
                                                               September 30,                  September 30,
                                                       -----------------------------  -----------------------------
                                                            2004           2003           2004            2003
                                                       --------------  -------------  -------------  --------------
Total revenues                                        $       408,219 $      398,423 $    1,178,939 $     1,257,056
Operating expenses and operating
  expenses - affiliated                                       168,588        166,645        507,825         530,106
Depreciation and amortization                                 101,706        102,557        306,672         305,102
Interest expense                                              (60,800)       (64,556)      (182,620)       (190,925)
Net loss                                                      (50,664)       (34,473)      (235,341)        (84,583)`

Rental income and tenant
reimbursements generated by our properties for the three and nine months ended September
30, 2004 and 2003 were as follows:

`Three Months Ended              Nine Months Ended
                                                               September 30,                  September 30,
                                                       -----------------------------  -----------------------------
                                                            2004           2003           2004            2003
                                                       --------------  -------------  -------------  --------------
Wholly-Owned Properties
The Park at the Willows                               $        80,361 $       67,787 $      239,171 $       230,273
Park Place Apartments Phase II                                327,858        330,636        939,768       1,026,783

Joint Venture Property
(Ownership % on September 30, 2004)
Blankenbaker Business Center 1A (31.34%)              $       237,253 $      237,253 $      711,758 $       711,758`

15

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We believe the changes in rental
income from period to period are temporary effects of each propertys specific mix of
lease maturities and are not indicative of any known trend.

The occupancy levels at our
properties and joint venture as of September 30, 2004 and 2003 were as follows:

`September 30,
                                                              -------------------------------------
                                                                     2004               2003
                                                              ------------------  -----------------
Wholly-Owned Properties
The Park at the Willows                                              88%                 79%
Park Place Apartments Phase II                                       86%                 89%

Joint Venture Properties
(Ownership % on September 30, 2004)
Blankenbaker Business Center 1A (31.34%)                            100%                100%`

We believe the changes in occupancy
on September 30 from year to year are temporary effects of each propertys specific
mix of lease maturities and are not indicative of any known trend.

The average occupancy levels at our
properties and joint ventures for the three and nine months ended September 30, 2004 and
2003 were as follows:

`Three Months Ended             Nine Months Ended
                                                             September 30,                 September 30,
                                                     -----------------------------  ----------------------------
                                                         2004            2003           2004           2003
                                                     -------------   -------------  -------------  -------------
Wholly-Owned Properties
The Park at the Willows                                   88%             76%            90%            83%
Park Place Apartments Phase II                            86%             88%            83%            91%

Joint Venture Properties
(Ownership % on September 30, 2004)
Blankenbaker Business Center 1A (31.34%)                 100%            100%           100%           100%`

We believe the changes in average
occupancy from period to period are temporary effects of each propertys specific mix
of lease maturities and are not indicative of any known trend.

We are making efforts to improve
occupancy at our apartment communities. We have an on-site leasing staff, who are
employees of NTS Development Company, at each of the apartment communities. The staff
handles all on-site visits from potential tenants, coordinates local advertising with NTS
Development Companys marketing staff, makes visits to local companies to promote
fully furnished apartments and works with current residents on lease renewals.

The lease at Blankenbaker Business
Center 1A provides for the tenant to contribute toward the payment of common area
maintenance expenses, insurance, utilities and real estate taxes. These lease provisions,
along with the fact that residential leases are generally for a period of one year, should
protect our operations from the impact of inflation and changing prices.

16

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The following discussion relating to
changes in our results of operations includes only material line items within our
Statements of Operations or line items for which there was a material change between the
three and nine months ending September 30, 2004 and 2003.

Rental Income

Rental income was approximately
$1,179,000 for the nine months ended September 30, 2004, as compared to approximately
$1,257,000 for the nine months ended September 30, 2003. The decrease of $78,000, or 6%,
for the nine months ended September 30, 2004 was primarily the result of decreased
occupancy at Park Place Apartments Phase II, partially offset by increased occupancy at
The Park at the Willows.

Rental income did not change
significantly for the three months ended September 30, 2004 and 2003. There were no
offsetting material changes.

Operating Expenses and
Operating Expenses  Affiliated

Operating expenses did not change
significantly for the three months ended September 30, 2004 and 2003. There were no
offsetting material changes.

Operating expenses for the nine
months ended September 30, 2004 and 2003 were approximately $299,000 and $325,000,
respectively. The decrease of approximately $26,000, or 8%, was primarily due to decreased
exterior landscaping costs and utility costs at Park Place Apartments Phase II.

Operating expenses  affiliated
did not change significantly between the three and nine months ended September 30, 2004
and 2003. There were no offsetting material changes.

Operating expenses  affiliated
are for the services performed by employees of NTS Development Company, an affiliate of
our General Partner. These employee services include property management, leasing,
maintenance, security and other services necessary to manage and operate our business.

Professional and
Administrative Expenses and Professional and Administrative Expenses Affiliated

Professional and administrative
expenses were $65,000 and $261,000 for the three and nine months ended September 30, 2004,
as compared to $38,000 and $162,000 for the three and nine months ended September 30,
2003. The increase of $27,000, or 71%, and $99,000, or 61%, for the three and nine months
ended September 30, 2004 was primarily the result of increased legal and professional fees
related to our proposed merger and litigation filed by limited partners. See Item 1 
Note 10 for information regarding our proposed merger and litigation filed by limited
partners.

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Professional and administrative
expenses  affiliated did not change significantly for the three and nine months
ended September 30, 2004 and 2003. There were no offsetting material changes.

Professional and administrative
expenses  affiliated are for the services performed by employees of NTS Development
Company, an affiliate of our General Partner. These employee services include legal,
financial and other services necessary to manage and operate our business.

Professional and administrative
expenses  affiliated consisted of approximately the following for the periods
presented:

`Nine Months Ended
                                                                          September 30,
                                                              -------------------------------------
                                                                     2004               2003
                                                              ------------------  -----------------
Finance                                                      $            19,000 $           15,000
Accounting                                                                63,000             56,000
Investor Relations                                                         9,000             10,000
Human Resources                                                            5,000              6,000
Overhead                                                                  11,000             11,000
                                                              ------------------  -----------------

Total                                                        $           107,000 $           98,000
                                                              ==================  =================`

Depreciation and
Amortization Expense

Our depreciation and amortization
expenses did not change significantly between the three and nine months ended September
30, 2004 and 2003. There were no offsetting material changes.

Interest Expense

Our interest expense did not change
significantly between the three and nine months ended September 30, 2004 and 2003. There
were no offsetting material changes.

# Liquidity and Capital
Resources

The following table sets forth the
cash provided by or used in operating activities, investing activities and financing
activities for the nine months ended September 30, 2004 and 2003.

Cash flows provided by (used in):

`Nine Months Ended
                                                                                September 30,
                                                                  -----------------------------------------
                                                                         2004                  2003
                                                                  ------------------    -------------------
Operating activities                                           $              55,109 $              278,576
Investing activities                                                           6,531               (237,372)
Financing activities                                                        (119,187)              (116,626)
                                                                  ------------------    -------------------

     Net decrease in cash and equivalents                      $             (57,547)$              (75,422)
                                                                  ==================    ===================`

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---

Net cash provided by operating
activities decreased from approximately $279,000 for the nine months ended September 30,
2003, to approximately $55,000 for the nine months ended September 30, 2004. The decrease
in net cash provided was primarily driven by reduced results of operations and the change
in accounts payable. The change in accounts payable reflects payments for professional
services related to our litigation filed by limited partners and our proposed merger.

Net cash used in investing activities
was approximately $237,000 for the nine months ended September 30, 2003. Net cash provided
by investing activities was approximately $7,000 for the nine months ended September 30,
2004. The increase in net cash provided was primarily due to a decrease in capital
expenditures at Park Place Apartments Phase II (roof replacements were made in 2003 with
no similar costs in 2004) and increased distributions from the joint venture which was
partially offset by increased capital expenditures at The Park at the Willows for a studio
renovation and HVAC replacements.

Net cash used in financing activities
did not change significantly from the nine months ended September 30, 2003 to the nine
months ended September 30, 2004.

Due to the fact that no distributions
were made during the nine months ended September 30, 2004 or 2003, the table which
presents that portion of the distributions that represents a return of capital in
accordance with GAAP has been omitted.

Future Liquidity

We believe the current occupancy
levels are considered adequate to fund the operations of our properties. However, our
future liquidity depends significantly on our properties occupancy remaining at a
level which provides for debt payments and adequate working capital, currently and in the
future. If occupancy were to fall below that level and remain at or below that level for a
significant period of time, our ability to make payments due under our debt agreements and
to continue paying daily operational costs would be greatly impaired. In addition, we may
be required to obtain financing in connection with the capital improvements and leasing
costs described below. The primary source of future liquidity is expected to be derived
from cash generated by our properties after adequate cash reserves are established for
future leasing, roof replacement and renovation costs. It is anticipated that the future
cash flow from operations combined with our cash reserves will be sufficient to meet these
needs. Cash reserves (which are unrestricted cash and equivalents as shown on our balance
sheet) were $206,108 on September 30, 2004.

We are currently in negotiations with
the sole tenant of our joint venture commercial building to renew their expiring lease. As
part of the lease renewal, we estimate that approximately $2,649,000 in capital
improvements will be required. These capital improvements include courtyard, restrooms and
loading dock renovations, monument signage, a new parking lot, a new visitor entrance,
ceiling tile replacements, exterior window modifications, new computer cabling, HVAC
replacements and upgrades, sewer system repairs, design fees and tenant finish. Failure of
this tenant to renew their lease would result in a loss of annual rental revenue and
operating expense recoveries to the joint

19

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venture.  Income from our
investment  in  the  joint  venture  that  owns  this  property  would  decrease
accordingly.  This would significantly  affect our liquidity and could result in
significant  cost to  refurbish  the  vacated  space  and  locate a new  tenant.

The demand on future liquidity is
anticipated to increase as a result of the replacement of the roofs at Park Place
Apartments Phase II (18 buildings), all of which were installed using shingles produced by
a single manufacturer. The shingles appear to contain defects which may cause the roofs to
fail. As the shingle manufacturer has declared bankruptcy, we do not expect to be able to
recover any of the costs of the roof replacements in the event of any such failures. We do
not have sufficient working capital to make all of the roof replacements at one time. As
of September 30, 2004, fifteen roof replacements have been completed. The total cost of
replacing the remaining roofs is estimated to be $60,000 ($20,000 per building). The three
remaining roof replacements have been budgeted for the second quarter of 2005.

The demand on future liquidity is
also anticipated to increase as a result of an exterior painting project at Park Place
Apartments Phase II, seal coating and re-striping of the parking lot at Park Place
Apartments Phase II, HVAC replacements at The Park at the Willows and chimney saddle
replacements at The Park at the Willows . All projects are budgeted for 2005. We expect to
spend approximately $110,000 on painting the exterior of the buildings at Park Place
Apartments Phase II. The seal coating and re-striping of the parking lot at Park Place
Apartments Phase II is estimated to cost approximately $32,000. The HVAC replacements at
The Park at the Willows are expected to cost approximately $16,000 and the chimney saddle
replacements are estimated to be approximately $14,000.

We have no other material commitments
for renovations or capital expenditures as of September 30, 2004.

# Proposed Merger

As part of the Settlement Agreement,
our general partner and the general partners of the four public partnerships affiliated
with us, have agreed to pursue a merger of the partnerships and several other affiliated
real estate entities into NTS Realty Holdings Limited Partnership (NTS
Realty). The merger is subject to, among other things, approval by a majority of the
limited partner interests in each partnership. For the nine months ended September 30,
2004 and 2003, our share of the legal and professional fees for the proposed merger was
approximately $132,000 and $31,000, respectively, which was included in our professional
and administrative expenses.

On February 4, 2004, NTS Realty filed
a joint consent solicitation statement/prospectus on Form S-4 with the Securities and
Exchange Commission. The solicitation statement/prospectus presents the merger of
NTS-Properties III; NTS-Properties IV; NTS-Properties V; NTS-Properties VI; and
NTS-Properties VII, Ltd. with NTS Realty. Concurrent with the merger, ORIG, LLC, a
Kentucky limited liability company, which is affiliated with our general partner, will
contribute substantially all its real estate assets and all of its liabilities to NTS
Realty. NTS Realty filed Amendment No. 1 on June 18, 2004, Amendment No. 2 on August 13,
2004 and Amendment No. 3 on September 30, 2004.

20

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On October 25, 2004 and October 27,
2004, NTS Realty filed Amendment No. 4 and Amendment No. 5, respectively, to its
registration statement on Form S-4, which includes a joint consent solicitation
statement/prospectus, with the Securities and Exchange Commission to seek approval of the
merger of NTS-Properties III, NTS-Properties IV, NTS-Properties V, NTS-Properties VI and
NTS-Properties VII, Ltd. (the Partnerships) into NTS Realty. The general
partners of the Partnerships agreed to pursue a merger of the Partnerships in the
Stipulation and Agreement of Settlement that was jointly filed by the general partners,
along with certain of their affiliates, with the class of plaintiffs in the action
originally captioned Buchanan, et al. v. NTS-Properties Associates, et al. (Case No. C 01-05090).

On October 27, 2004, the Securities
and Exchange Commission signed an order declaring NTS Realtys registration statement
to be effective and the Partnerships began mailing the joint consent solicitation
statement/prospectus to their respective limited partners.

# Website Information

Our website address is
www.ntsdevelopment.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act are available and may be accessed
free of charge through the About NTS section of our website as soon as
reasonably practicable after we electronically file this material with, or furnish it to,
the SEC. Our website and the information contained therein or connected thereto are not
incorporated into this quarterly report on Form 10-Q.

# Item 3 
Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk exposure with
regard to financial instruments is changes in interest rates. Our mortgage payable bears
interest at a fixed rate. A hypothetical 100 basis point increase in interest rates would
result in an approximate $158,000 decrease in the fair value of debt.

# Item 4  Controls
and Procedures

Our General Partner, with the
participation of the Chief Executive Officer and Chief Financial Officer, has evaluated
the effectiveness of our disclosure controls and procedures as of September 30, 2004.
Based on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of September 30,
2004. There were no material changes in our internal controls over financial reporting
during the nine months ended September 30, 2004.

21

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# PART II  OTHER INFORMATION

# Item 1  Legal Proceedings

On May 6, 2004, the Superior Court of
the State of California for the County of Contra Costa granted its final approval of the
Stipulation and Agreement of Settlement (the Settlement Agreement) jointly
filed by the general partners (the General Partners) of NTS-Properties III,
NTS-Properties IV, NTS-Properties V, NTS-Properties VI and NTS-Properties VII, Ltd. (the
Partnerships), along with certain of their affiliates, with the class of
plaintiffs in the action originally captioned Buchanan, et al. v. NTS-Properties
Associates, et al.(Case No. C 01-05090) on December 5, 2003.  At the final
hearing, any member of the class of plaintiffs was given the opportunity to object to the
final approval of the Settlement Agreement, the entry of a final judgment dismissing with
prejudice the Buchananlitigation, or an application of an award for
attorneys fees and expenses to plaintiffs counsel. The Superior
Courts order provides, among other things, that: (1) the Settlement Agreement, and
all transactions contemplated thereby, including the proposed merger of the Partnerships
into NTS Realty Holdings Limited Partnership, are fair, reasonable and adequate, and in
the best interests of the class of plaintiffs; (2) the plaintiffs complaint and each
and every cause of action and claim set forth therein is dismissed with prejudice; (3)
each class member is barred from transferring, selling or otherwise disposing of
(other than by operation of law) their interests until the earlier of the closing date of
the merger, the termination of the settlement or June 30, 2004; and (4) each class member
who requested to be excluded from the settlement released their claims in the Bohm
litigation.

On June 11, 2004, Joseph Bohm and
David Duval, class members who objected to the Settlement Agreement but were overruled by
the Superior Court, filed an appeal in the Court of Appeals of the State of California,
first Appellate District.

On February 27, 2003, two individuals
filed a class and derivative action in the Circuit Court of Jefferson County, Kentucky
captioned Bohm, et al. v. J.D. Nichols, et al.(Case No. 03-CI-01740) against
certain of the General Partners and several individuals and entities affiliated with us.
The complaint was amended to include the general partner of NTS-Properties III and the
general partner of NTS-Properties Plus Ltd., which is no longer in existence. In the
amended complaint, the plaintiffs purport to bring claims on behalf of a class of limited
partners and derivatively on behalf of us and the Partnerships based on alleged
overpayment of fees, prohibited investments, improper failures to make distributions,
purchases of limited partnerships interests at insufficient prices and other violations of
the limited partnership agreements. The plaintiffs are seeking, among other things,
compensatory and punitive damages in an unspecified amount, an accounting, the appointment
of a receiver or liquidating trustee, the entry of an order of dissolution against the
Partnerships, a declaratory judgment and injunctive relief. No amounts have been accrued
for the settlement of this action in our financial statements. Our general partner and
legal counsel believe that this action is without merit and are vigorously defending it.

22

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On March 2, 2004, we, along with all
defendants, filed a Motion to Dismiss the Bohm litigation. After the Motion to
Dismiss was fully briefed, the settlement agreement in the Buchanan litigation
received final court approval. The Circuit Court of Jefferson County, Kentucky, instructed
the plaintiffs in the Bohm litigation to file an amended complaint in light of the
approved settlement of the Buchanan litigation. The plaintiffs in the Bohm
litigation filed a corrected Second Amended Complaint on August 11, 2004. We, along with
all defendants, filed a Motion to Strike the corrected Second Amended Complaint. A hearing
on this motion is scheduled for January 14, 2005. Our general partner believes that the
claims asserted in the corrected Second Amended Complaint have no merit.

Items 2 through 5 are omitted because these items are inapplicable or the answers to the items are negative.

# Item 6  Exhibits

Exhibit No.

|     |                                                                                                                                                        |    
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------ | ---
|3    | Amended and Restated Agreement and Certificate
of Limited Partnership of NTS-Properties VII, Ltd.,
a Florida limited partnership.                      | *  
|    
|10   | Property Management Agreement and Construction
Agreement between NTS Development Company and 
NTS-Properties VII, Ltd., a Florida limited partnership. | *  
|    
|14   | Code of Ethics.                                                                                                                                        | ** 
|    
|31.1 | Certification of Chief Executive Officer Pursuant to
Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act, as amended.                     | ***
|    
|31.2 | Certification of Chief Financial Officer Pursuant to
Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act, as amended.                     | ***
|    
|32.1 | Certification of Chief Executive Officer Pursuant to
18 U.S.C. 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.             | ***

23

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|     |                                                                                                                                                                                                                                                     |    
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---
|32.2 | Certification of Chief Financial Officer Pursuant to
18 U.S.C. 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.                                                                                                          | ***
|    
|*    | Incorporated by reference to documents filed with the Securities and Exchange
Commission in connection with the filing of the Registration Statements on Form S-11
on May 15, 1987 (effective October 29, 1987) under Commission File No. 33-14308.
|    
|**   | See www.ntsdevelopment.com for our code of ethics.                                                                                                                                                                                                 
|    
|***  | Attached as an exhibit with this Form 10-Q.                                                                                                                                                                                                        

Reports on Form 8-K

We filed a Form 8-K on August 17,
2004, to inform investors of a mini-tender offer by CMG Partners, LLC to purchase their
interests in NTS-Properties VII, Ltd. for $8.50 per interest in cash. We also informed the
investors that we recommended a rejection of the offer and provided reasons for our
recommendation.

We filed a Form 8-K on October 29,
2004 to announce that on October 25, 2004 and October 27, 2004, NTS Realty Holdings
Limited Partnership (NTS Realty) filed Amendment No. 4 and Amendment No. 5,
respectively, to its registration statement on Form S-4. NTS Realty filed the original Form S-4 on February 4, 2004, Amendment No. 1
on June 18, 2004, Amendment No. 2 on August 13, 2004 and Amendment No. 3 on September 30,
2004.

24

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|NTS-PROPERTIES VII, LTD.
|------------------------
|
|                        
|By:                     
|                        
|                        
|                        
|                        
|                        
|                        

|/s/ Brian F. Lavin                                
|--------------------------------------------------
|                                                  
|Brian F. Lavin                                    
|President of NTS Capital Corporation              
|                                                  
|                                                  
|/s/ Gregory A. Wells                              
|                                                  
|Gregory A. Wells                                  
|Chief Financial Officer of NTS Capital Corporation
|                                                  
|                                                  
|Date: November 15, 2004                           

25