# 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 March 31, 2004

OR

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

Commission File Number
0-11176

NTS-PROPERTIES III(Exact name of registrant as specified in its charter)

|Georgia                         | 61-1017240                          
|------------------------------- | ------------------------------------
|(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
Securities Exchange Act).     Yes [   ]    No [X]

---

# TABLE OF CONTENTS

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

# PART I 
FINANCIAL INFORMATION

|        |  |                                                                                            |  |      
|------- |  | ------------------------------------------------------------------------------------------ |  | -----
|       
|Item 1. |  | Financial Statements                                                                      
|       
|        |  | Balance Sheets as of March 31, 2004
     and December 31, 2003                             |  | 4    
|       
|        |  | Statement of Partners' Equity as of March 31, 2004                                         |  | 4    
|       
|        |  | Statements of Operations for the
     Three Months Ended March 31, 2004 and 2003           |  | 5    
|       
|        |  | Statements of Cash Flows for the
     Three Months Ended March 31, 2004 and 2003           |  | 6    
|       
|        |  | Notes to Financial Statements                                                              |  | 7-12 
|       
|Item 2. |  | Management's Discussion and Analysis of Financial
     Condition and Results of Operations |  | 13-20
|       
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                 |  | 21   
|       
|Item 4. |  | Controls and Procedures                                                                    |  | 21   
|       

# PART II  OTHER INFORMATION

|            |  |  |  |      
|----------- |  |  |  | -----
|           
|Items 1 - 6 |  |  |  | 22-23
|           
|Signatures  |  |  |  | 24   

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 III
BALANCE SHEETS

`As of               As of
                                                                    March 31,         December 31,
                                                                       2004               2003
                                                                ------------------  -----------------
                                                                   (UNAUDITED)
ASSETS
Cash and equivalents                                           $           223,493 $          180,911
Cash and equivalents - restricted                                           27,716              9,233
Accounts receivable, net                                                   876,258            804,027
Land, buildings and amenities, net                                       8,904,691          9,118,287
Other assets                                                               352,658            347,164
                                                                ------------------  -----------------

      TOTAL ASSETS                                             $        10,384,816 $       10,459,622
                                                                ==================  =================

LIABILITIES AND PARTNERS' EQUITY
Mortgages payable                                              $         6,200,552 $        6,309,037
Accounts payable and accrued expenses                                      231,954            291,500
Security deposits                                                          145,977            143,292
Other liabilities                                                          105,123             34,246
                                                                ------------------  -----------------

      TOTAL LIABILITIES                                                  6,683,606          6,778,075

COMMITMENTS AND CONTINGENCIES (Note 8)

PARTNERS' EQUITY                                                         3,701,210          3,681,547
                                                                ------------------  -----------------

TOTAL LIABILITIES AND PARTNERS' EQUITY                         $        10,384,816 $       10,459,622
                                                                ==================  =================`

# NTS-PROPERTIES III
STATEMENT OF PARTNERS EQUITY
(UNAUDITED)

`Limited            General
                                                    Partners            Partner              Total
                                                -----------------  ------------------  ------------------
PARTNERS' EQUITY/(DEFICIT)
Initial equity                                 $       15,600,000 $         8,039,710 $        23,639,710
Adjustment to historical basis                                 --          (5,455,030)         (5,455,030)
                                                -----------------  ------------------  ------------------

     EQUITY                                    $       15,600,000 $         2,584,680 $        18,184,680

Net income (loss) - prior years                           551,145          (2,799,208)         (2,248,063)
Net income (loss) - current year                           31,184             (11,522)             19,662
Cash distributions declared to date                   (11,349,844)           (206,985)        (11,556,829)
Repurchase of limited partnership interests              (698,240)                 --            (698,240)
                                                -----------------  ------------------  ------------------

BALANCES ON MARCH 31, 2004                     $        4,134,245 $          (433,035)$         3,701,210
                                                =================  ==================  ==================`

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

4

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# NTS-PROPERTIES III
STATEMENTS OF OPERATIONS
(UNAUDITED)

`Three Months Ended
                                                                              March 31,
                                                                -------------------------------------
                                                                       2004               2003
                                                                ------------------  -----------------
REVENUES
Rental income                                                  $           771,463 $          826,331
Rental income - affiliated                                                  73,834             73,834
Tenant reimbursements                                                       88,770             92,699
                                                                ------------------  -----------------

     TOTAL REVENUES                                                        934,067            992,864
                                                                ------------------  -----------------

EXPENSES
Operating expenses                                                         191,169            212,250
Operating expenses - affiliated                                             87,460             70,470
Management fees                                                             42,922             48,342
Real estate taxes                                                           52,146             52,041
Professional and administrative expenses                                   126,610             64,351
Professional and administrative expenses - affiliated                       36,042             35,821
Depreciation and amortization                                              279,088            283,847
                                                                ------------------  -----------------

     TOTAL OPERATING EXPENSES                                              815,437            767,122
                                                                ------------------  -----------------

OPERATING INCOME                                                           118,630            225,742

Interest and other income                                                    2,919              4,651
Interest expense                                                          (101,439)          (113,940)
Loss on disposal of assets                                                    (448)                --
                                                                ------------------  -----------------

Net income                                                     $            19,662 $          116,453
                                                                ==================  =================

Net income allocated to the limited partners                   $            31,184 $          127,495
                                                                ==================  =================

Net income per limited partnership interest                    $              2.48 $            10.14
                                                                ==================  =================

Weighted average number of limited partnership interests                    12,570             12,570
                                                                ==================  =================`

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

5

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# NTS-PROPERTIES III
STATEMENTS OF CASH FLOWS
(UNAUDITED)

`Three Months Ended
                                                                                March 31,
                                                                  --------------------------------------
                                                                        2004                 2003
                                                                  -----------------    -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                     $             19,662 $            116,453
Adjustments to reconcile net income to net cash provided by
  operating activities:
    Loss on disposal of assets                                                  448                   --
    Depreciation and amortization                                           306,694              311,479
    Changes in assets and liabilities:
      Cash and equivalents - restricted                                     (18,483)             (19,371)
      Accounts receivable                                                   (72,231)             (25,357)
      Other assets                                                          (37,472)             (16,370)
      Accounts payable                                                      (59,546)                 614
      Security deposits                                                       2,685                4,724
      Other liabilities                                                      70,877               47,120
                                                                  -----------------    -----------------

     Net cash provided by operating activities                              212,634              419,292
                                                                  -----------------    -----------------

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and amenities                                  (60,567)            (105,255)
                                                                  -----------------    -----------------

     Net cash used in investing activities                                  (60,567)            (105,255)
                                                                  -----------------    -----------------

CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgages payable                                    (108,485)            (103,274)
Increase in loan costs                                                       (1,000)                  --
                                                                  -----------------    -----------------

     Net cash used in financing activities                                 (109,485)            (103,274)
                                                                  -----------------    -----------------

     Net increase in cash and equivalents                                    42,582              210,763

CASH AND EQUIVALENTS, beginning of period                                   180,911              388,449
                                                                  -----------------    -----------------

CASH AND EQUIVALENTS, end of period                            $            223,493 $            599,212
                                                                  =================    =================

Interest paid on a cash basis                                  $            100,618 $            113,193
                                                                  =================    =================`

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

6

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# NTS-PROPERTIES III
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

The unaudited financial statements
included herein should be read in conjunction with NTS-Properties III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 months ended March 31, 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 III or its interests in its properties.

# Note 1  Use of
Estimates in the Preparation of Financial Statements

The preparation of financial
statements in accordance with accounting principles generally accepted in the United
States 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 2 
Concentration of Credit Risk

We own and operate three commercial
properties  Peachtree Corporate Center, in Norcross, Georgia, a suburb of Atlanta,
and NTS Center and Plainview Center, both in Jeffersontown, Kentucky, a suburb of
Louisville. One tenant in NTS Center occupies 46% of the office buildings net
rentable area. One tenant in Plainview Center occupies 49% of the office buildings
net rentable area.

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.

# Note 3  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 March 31,
2004, approximately $207,000 of our overnight investment was included in cash and
equivalents.

7

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# Note 4  Cash and
Equivalents  Restricted

Cash and equivalents 
restricted represents funds which have been escrowed with a mortgage company for NTS
Centers property taxes in accordance with the loan agreement.

# Note 5  Basis of
Property and Depreciation

Land, buildings and amenities are
stated at historical cost, less accumulated depreciation. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets which are 6-30
years for land improvements, 5-30 years for buildings and improvements, 3-27 years for
amenities and the applicable lease term for tenant improvements. The aggregate cost of our
properties for federal tax purposes is approximately $28,700,000.

Statement of Financial Accounting
Standards 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 6  Mortgages
Payable

Mortgages payable consists of the
following:

`March 31,          December 31,
                                                                        2004                 2003
                                                                  -----------------    -----------------
Mortgage payable to an insurance company in monthly
installments, bearing interest at 6.89%, maturing April 10,
2015, secured by land and buildings.                           $          5,260,552 $          5,339,037

Mortgage payable to a bank in monthly installments, bearing a
variable interest rate of Prime -.25%, due March 1, 2005,
secured by land and a building.  The current rate on March 31,
2004 was 3.75%.                                                             940,000              970,000
                                                                  -----------------    -----------------

                                                               $          6,200,552 $          6,309,037
                                                                  =================    =================`

Our mortgages may be prepaid but are
subject to a yield-maintenance premium.

As of March 31, 2004, the fair value of
long-term debt was approximately $6,180,000, based on the borrowing rates currently
available to us for mortgages with similar terms and average maturities.

8

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# Note 7  Related
Party Transactions

Pursuant to an agreement with us, NTS
Development Company, an affiliate of our General Partner, receives property management
fees. The fees are paid in an amount equal to 5% of the gross receipts from our
properties. Also pursuant to an agreement, NTS Development Company receives a repair and
maintenance fee equal to 5.9% of the costs incurred which relate to capital improvements.
These repair and maintenance fees are capitalized as part of land, buildings and
amenities.

We were charged the following amounts
pursuant to an agreement with NTS Development Company for the three months ended March 31,
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.

`Three Months Ended
                                                                               March 31,
                                                                ----------------------------------------
                                                                       2004                 2003
                                                                -------------------  -------------------

Property management fees                                       $             42,922 $             48,342
                                                                -------------------  -------------------

Property management                                                          54,487               43,991
Leasing                                                                      15,291               14,835
Administrative - operating                                                   15,653                8,775
Other                                                                         2,029                2,869
                                                                -------------------  -------------------

     Total operating expenses - affiliated                                   87,460               70,470
                                                                -------------------  -------------------

Professional and administrative expenses - affiliated                        36,042               35,821
                                                                -------------------  -------------------

Repair and maintenance fees                                                   1,890                   --
Leasing commissions                                                           3,303                5,500
                                                                -------------------  -------------------

     Total related party transactions capitalized                             5,193                5,500
                                                                -------------------  -------------------

Total related party transactions                               $            171,617 $            160,133
                                                                ===================  ===================`

During the three months ended March
31, 2004 and 2003, we were charged $1,828 and $1,988, respectively, for property
maintenance fees from an affiliate of NTS Development Company.

During the three months ended March
31, 2004 and 2003, NTS Development Company leased 20,368 square feet in NTS Center at a
rental rate of $14.50 per square foot. We received approximately $74,000 in rental
payments from NTS Development Company during each of the three months ended March 31, 2004
and 2003. The lease term for NTS Development Company ended on March 31, 2004. The lease
was extended for one year to March 31, 2005, at a rental rate of $14.50 per square foot
for 20,368 square feet.

9

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# Note 8 
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.

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 purports to bring claims on behalf of a class of limited partners. These claims
are 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 allege, among other things, that the prices at which limited
partnership interests were purchased in these tender offers were too low. The plaintiffs
are seeking 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 as a liability for this action in our financial
statements. Under an indemnification agreement with our general partner, we are
responsible for the costs of defending any such action.

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
as a liability for this action in our financial statements. Our general partner believes
that this action is without merit and is 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 Buchananlitigation. This agreed upon settlement includes
releases for all of the parties for all of the claims asserted in the Buchananlitigation 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").

On December 5, 2003, the General
Partners, certain of their affiliates and the class of plaintiffs in the Buchananlitigation jointly filed a Stipulation and Agreement of Settlement (the
Settlement Agreement) with the Superior Court. The Settlement Agreement sets
forth in writing 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 Bohmlitigation. The Motion is currently
pending before the court.

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 (a) 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 Bohmlitigation.

For the three months ended March 31,
2004, our share of the legal costs for the Buchananand Bohmlitigations was
approximately $29,000, 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.

11

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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 a newly formed limited partnership known as NTS Realty. The
merger is subject to, among other things, approval by a majority of the limited partner
interests in each partnership. We may not seek the approval of the limited partners until
a filing made by NTS Realty with the Securities and Exchange Commission is declared
effective. For the three months ended March 31, 2004, our share of the legal and
professional fees for the proposed merger was approximately $73,000.

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.

# Note 9  Segment
Reporting

Our reportable operating segments
include only one segment  Commercial Real Estate Operations.

12

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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 effect 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 accounting principles
generally accepted in the United States (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 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.

13

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Recognition of Rental
Income

Our commercial property leases are
accounted for as operating leases. We accrue minimum rents on a straight-line basis over
the terms of their respective leases. We structure our leases to allow us to recover a
significant portion of our property operating, real estate taxes and repairs and
maintenance expenses from our tenants. Property operating expenses typically include
utility, insurance, security, janitorial, landscaping and other administrative expenses.
We accrue reimbursements from tenants for recoverable portions of all these expenses as
revenue in the period the applicable expenditures are incurred. We also receive estimated
payments for these reimbursements from substantially all our tenants throughout the year.
We do this to reduce the risk of loss on uncollectible accounts once we perform the final
year-end billings for recoverable expenditures. We recognize the difference between
estimated recoveries and the final billed amounts in the subsequent year and we believe
these differences were not material in any period presented.

Under GAAP, we are required to
recognize rental income based on the effective monthly rent for each lease. The effective
monthly rent is equal to the average monthly rent during the term of the lease, not the
stated rent for any particular month. The process, known as straight-lining or
stepping rent generally has the effect of increasing rental revenues during
the early phases of a lease and decreasing rental revenues in the latter phases of a
lease. Due to the impact of straight- lining, rental income exceeded the cash
collected for rent by approximately $64,000 and $31,000, for the three months ended March
31, 2004 and 2003, respectively. If rental income calculated on a straight-line basis
exceeds the cash rent due under the lease, the difference is recorded as an increase in
deferred rent receivable and included as a component of accounts receivable on the
relevant balance sheet. If the cash rent due under the lease exceeds rental income
calculated on a straight-line basis, the difference is recorded as a decrease in deferred
rent receivable and is recorded as a decrease of accounts receivable on the relevant
balance sheet. We defer recognition of contingent rental income, such as percentage or
excess rent, until the specified target that triggers the contingent rental income is
achieved. We periodically review the collectability of outstanding receivables. Allowances
are generally taken for tenants with outstanding balances due for a period greater than
ninety days and for tenants with potentially uncollectible outstanding balances due for a
period less than ninety days.

Recognition of Lease
Termination Income

We recognize lease termination income
upon receipt of the income. We accrue lease termination income if there is a signed
termination agreement, all of the conditions of the agreement have been met and the tenant
is no longer occupying the property.

14

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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
5-30 years, land improvements have estimated useful lives of between 6-30 years and
amenities have estimated useful lives between 3-27 years.

Results of Operations

The following tables include our
selected summarized operating data for the three months ended March 31, 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
                                                                             March 31,
                                                              ---------------------------------------
                                                                       2004               2003
                                                              ---------------------------------------
Total revenues                                                 $           934,067 $          992,864
Operating expenses and operating
  expenses - affiliated                                                    278,629            282,720
Depreciation and amortization                                              279,088            283,847
Interest expense                                                           101,439            113,940
Net income                                                                  19,662            116,453`

Rental income and tenant
reimbursements generated by our properties for the three months ended March 31, 2004 and
2003 were as follows:

`Three Months Ended
                                                                              March 31,
                                                                -------------------------------------
                                                                       2004               2003
                                                                ------------------  -----------------

NTS Center                                                     $           266,276 $          335,367
Plainview Center                                               $           334,717 $          308,708
Peachtree Corporate Center                                     $           333,074 $          348,789`

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

15

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The occupancy levels at our properties as of March 31, 2004 and 2003 were as follows:

`Three Months Ended
                                                                            March 31,
                                                              -------------------------------------
                                                                     2004               2003
                                                              ------------------  -----------------

NTS Center                                                           72%                 87%
Plainview Center                                                     78%                 69%
Peachtree Corporate Center                                           85%                 83%`

We believe the changes in occupancy on March 31 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 for the three months ended March 31, 2004 and 2003
were as follows:

`Three Months Ended
                                                                            March 31,
                                                              -------------------------------------
                                                                     2004               2003
                                                              ------------------  -----------------

NTS Center                                                           72%                 86%
Plainview Center                                                     78%                 70%
Peachtree Corporate Center                                           85%                 84%`

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 increase the
occupancy levels at our properties. The leasing and renewal negotiations for NTS Center
and Plainview Center are handled by leasing agents that are employees of NTS Development
Company, in Louisville, Kentucky. At Peachtree Corporate Center, in Norcross, Georgia, we
have an off-site leasing agent, who makes calls to potential tenants, negotiates lease
renewals with current tenants and manages local advertising with the assistance of NTS
Development Companys marketing staff located in Louisville, Kentucky.

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 months ending March 31, 2004 and 2003.

Rental Income and Tenant
Reimbursements

Our rental income and tenant
reimbursements for the three months ended March 31, 2004 and 2003 was approximately
$934,000 and $993,000, respectively. The decrease of $59,000, or 6%, was primarily due to
decreased average occupancy at NTS Center. The decrease was partially offset by increased
average occupancy at Plainview Center. Rental income  affiliated was approximately
$74,000 for each of the periods ended March 31, 2004 and 2003.

16

---

Quarter-ending occupancy percentages
represent occupancy only on a specific date; therefore, the above analysis considers
average occupancy percentages, which are more representative of the entire year-to-date
results.

Operating Expenses and
Operating Expenses  Affiliated

Our operating expenses for the three
months ended March 31, 2004 and 2003 were approximately $191,000 and $212,000,
respectively. The decrease of $21,000, or 10%, was primarily due to decreased utility
expenses (NTS Center, Plainview Center and Peachtree Corporate Center) and decreased bad
debt expense (Peachtree Corporate Center).

Our operating expenses 
affiliated for the three months ended March 31, 2004 and 2003 were approximately $87,000
and $70,000, respectively. The increase of $17,000, or 24%, was primarily due to increased
personnel costs at NTS Center and Plainview Center.

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

Our professional and administrative
expenses for the three months ended March 31, 2004 and 2003 were approximately $127,000
and $64,000, respectively. The increase of $63,000, or 97%, was a result of costs incurred
for legal and professional fees related to our proposed merger and litigation filed by
limited partners. See Item 1- Note 8 for information regarding our proposed merger and
litigation filed by limited partners.

Our professional and administrative
expenses  affiliated did not change significantly between the periods ending March
31, 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.

Depreciation and
Amortization Expense

Our depreciation and amortization
expense did not change significantly between the periods ending March 31, 2004 and 2003.
There were no offsetting material changes.

17

---

Interest Expense

Our interest expense for the three
months ended March 31, 2004 and 2003 was approximately $101,000 and $114,000,
respectively. The decrease of $13,000, or 11%, was primarily the result of additional
principal payments made in 2003 which reduced the outstanding balance on our mortgage
payable secured by Plainview Center.

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 three months ended March 31, 2004 and 2003.

Cash flows provided by (used in):

`Three Months Ended
                                                                                  March 31,
                                                                  -----------------------------------------
                                                                         2004                  2003
                                                                  ------------------    -------------------
Operating activities                                           $             212,634 $              419,292
Investing activities                                                         (60,567)              (105,255)
Financing activities                                                        (109,485)              (103,274)
                                                                  ------------------    -------------------

     Net increase in cash and equivalents                      $              42,582 $              210,763
                                                                  ==================    ===================`

Net cash provided by operating
activities decreased from approximately $419,000 for the three months ended March 31, 2003
to approximately $213,000 for the three months ended March 31, 2004. The $206,000 decrease
was due to decreased cash available from operations as a result of increased expenses
associated with our litigation filed by limited partners and our proposed merger and
decreased average occupancy at NTS Center.

Net cash used in investing activities
decreased from approximately $105,000 for the three months ended March 31 2003 to
approximately $61,000 for the three months ended March 31, 2004. The $44,000 decrease in
net cash used was primarily due to a decrease in additions to land, buildings and
amenities at NTS Center.

Net cash used in financing activities
increased from approximately $103,000 for the three months ended March 31, 2003 to
approximately $109,000 for the three months ended March 31, 2004. The $6,000 increase was
primarily the result of additional principal payments made on the Plainview Center
mortgage in 2003.

Due to the fact that no distributions
were made during the three months ended March 31, 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.

18

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Future Liquidity

We believe the current occupancy
levels are 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.

A major tenant at NTS Center with a
near lease term expiration is seeking alternatives to renewing its expiring lease with us.
This tenant is currently occupying 53,435 square feet, or 46% of the total rentable square
feet of the building, at an annual rate of $13.59 per square foot. The failure of this
tenant to renew its lease at NTS Center would result in a loss of annual rental revenue
and operating expense recoveries of approximately $726,000, or 19% of 2003s total
revenues. This would significantly impair our liquidity, and could result in significant
costs to refurbish the vacated space and locate new tenants. At this time, we are not
certain whether the tenant intends to renew its lease as allowed by the lease agreement,
or vacate its space. Approximately $1,000,000 will be needed for renovations if this
tenant renews its lease. We do not have an estimate for the costs to locate a replacement
tenant or refinish the space occupied by this tenant.

On March 31, 2003, a major tenant at
NTS Center vacated its space. This tenant occupied 16,937 square feet, or 15% of the total
rentable square feet of the building, at an annual rate of $15.28 per square foot. This
will result in an annual loss of approximately $259,000, or 7% of 2003s total
revenues. There may be significant demands on future liquidity as a result of this
vacancy.

In the next 12 months, we expect the
demand on future liquidity to increase as a result of future leasing activity. There has
been and will likely continue to be a protracted period for Plainview Center and NTS
Center to become fully leased again. At March 31, 2004 there were approximately 29,000,
21,000 and 30,000 square feet of vacant space available to lease at NTS Center, Plainview
Center and Peachtree Corporate Center, respectively. Approximately $1,255,000 will be
needed for leasing costs, especially those needed to refinish these spaces for new
tenants. As of March 31, 2004, we had not made any commitments for tenant finish
improvements at Plainview Center, NTS Center or Peachtree Corporate Center.

As of March 31, 2004, we anticipate
making certain building improvements in 2004 totaling approximately $105,000. These
improvements include HVAC replacements and window seal repairs at Peachtree Corporate
Center, estimated to cost $55,000, HVAC replacements, electrical panel repairs and
exterior stairwell repairs at NTS Center, estimated to cost $33,000 and HVAC replacements
at Plainview Center, estimated to cost $17,000.

19

---

We anticipate using cash provided by
operations and cash reserves to fund a portion of the capital improvements and leasing
costs described above. However, we believe that funding these expenses may also require
existing financing or additional financing secured by our properties and there is no
assurance that this financing will be available.

We have no other material commitments
for renovations or capital expenditures as of March 31, 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 a newly formed limited partnership known as 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. We
may not seek the approval of the limited partners until a filing made by NTS Realty with
the Securities and Exchange Commission is declared effective. For the three months ended
March 31, 2004, our share of the legal and professional fees for the proposed merger was
approximately $73,000.

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.

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.

20

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# Item 3 
Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk exposure with
regard to financial instruments stems from changes in interest rates. Our debt bears
interest at a fixed rate with the exception of the $3,500,000 mortgage payable obtained on
May 9, 2000, which had a balance of $940,000 as of March 31, 2004. On March 31, 2004, a
hypothetical 100 basis point increase in interest rates would result in an approximate
$247,000 decrease in the fair value of the debt and would increase interest expense on the
variable rate mortgage by approximately $9,000 annually.

# 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 March 31, 2004. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures were effective as of March 31, 2004. There were no
material changes in our internal controls over financial reporting during the first
quarter of 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 (a) 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 Bohmlitigation.

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

# Item 6  Exhibits
and Reports on Form 8-K

|            |                                                      |    
|----------- | ---------------------------------------------------- | ---
|Exhibit No. |                                                      |    
|            |                                                      |    
|3           | Amended and Restated Agreement and Certificate       | *  
|            | of Limited Partnership of NTS-Properties III.        |    
|            |                                                      |    
|10          | Management Agreement between NTS Development Company | *  
|            | and NTS-Properties III.                              |    
|            |                                                      |    
|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.                            |    

22

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|     |                                                      |    
|---- | ---------------------------------------------------- | ---
|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.                   |    
|     |                                                      |    
|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 June 25, 1982 (effective October 13, 1982) under Commission File No. 2-78152.
|    |                                                                                                                                                                                                                                                    
|**  | See www.ntsdevelopment.comfor 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 February 6,
2004, to announce that NTS Realty Holdings Limited Partnership filed a Form S-4, which
included a joint consent solicitation statement/prospectus, with the Securities and
Exchange Commission on February 4, 2004.

We filed a Form 8-K on March 1, 2004,
to announce the preliminary approval of the settlement with the class of plaintiffs in the
action originally captioned Buchanan et al. v. NTS-Properties Associates, et al.(Case No. C 01-05090) by the Superior Court of the State of California for the County of
Contra Costa.

We filed a Form 8-K on May 10, 2004,
to announce the final approval of the settlement with the class of plaintiffs in the
action originally captioned Buchanan et al. v. NTS-Properties Associates, et al.(Case No. C 01-05090) by the Superior Court of the State of California for the County of
Contra Costa.

23

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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 III
|------------------
|
|                  
|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: May 13, 2004                                

24