SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Commission file number: 000-50067

CROSSTEX ENERGY, L.P.

(Exact name of registrant as specified in its charter)

(214) 953-9500

(Registrant’s telephone number, including area code)

     Indicate by check mark whether 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 þ          No o

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

      As of April 1, 2005, the Registrant had 8,722,081 common units and 9,334,000 subordinated units outstanding.

TABLE OF CONTENTS

CROSSTEX ENERGY, L.P.

Condensed Consolidated Balance Sheets

See accompanying notes to consolidated financial statements.

CROSSTEX ENERGY, L.P.

Consolidated Statements of Operations

See accompanying notes to consolidated financial statements.

CROSSTEX ENERGY, L.P.

Consolidated Statements of Changes in Partners’ Equity

Three Months Ended March 31, 2005

See accompanying notes to consolidated financial statements.

CROSSTEX ENERGY, L.P.

Consolidated Statements of Comprehensive Income

See accompanying notes to consolidated financial statements.

CROSSTEX ENERGY, L.P.

Consolidated Statements of Cash Flows

See accompanying notes to consolidated financial statements.

CROSSTEX ENERGY, L.P.

Notes to Consolidated Financial Statements

March 31, 2005

(Unaudited)

      Unless the context requires otherwise, references to “we”, “us”, “our” or the “Partnership” mean Crosstex Energy, L.P. and its consolidated subsidiaries.

      Crosstex Energy, L.P. (the Partnership), a Delaware limited partnership formed on July 12, 2002, is engaged in the gathering, transmission, treating, processing and marketing of natural gas. The Partnership connects the wells of natural gas producers to its gathering systems in the geographic areas of its gathering systems in order to purchase the gas production, treats natural gas to remove impurities to ensure that it meets pipeline quality specifications, processes natural gas for the removal of natural gas liquids or NGLs, transports natural gas and ultimately provides an aggregated supply of natural gas to a variety of markets. In addition, the Partnership purchases natural gas from producers not connected to its gathering systems for resale and sells natural gas on behalf of producers for a fee.

      The accompanying consolidated financial statements are prepared in accordance with the instructions to Form 10-Q, are unaudited and do not include all the information and disclosures required by generally accepted accounting principles for complete financial statements. All adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations for the interim periods have been made and are of a recurring nature unless otherwise disclosed herein. The results of operations for such interim periods are not necessarily indicative of results of operations for a full year. All significant intercompany balances and transactions have been eliminated in consolidation. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2004.

      The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management of the Partnership 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 period. Actual results could differ from these estimates.

      The Partnership applies the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), and the related interpretations in accounting for the long-term incentive plans. In accordance with APB No. 25 for fixed stock and unit options, compensation is recorded to the extent the fair value of the stock or unit exceeds the exercise price of the option at the measurement date. Compensation costs for fixed awards with pro rata vesting are recognized on a straight-line basis over the vesting period. In addition, compensation expense is recorded for variable options based on the difference between fair value of the stock or unit and exercise price of the options at period end. Compensation expense of $276,000 and $209,000 was recognized during the three months ended March 31, 2005 and 2004, respectively.

CROSSTEX ENERGY, L.P.

Notes to Consolidated Financial Statements — (Continued)

      Had compensation cost for the Partnership been determined based on the fair value at the grant date for awards in accordance with SFAS No. 123, Accounting for Stock-based Compensation, the Partnership’s net income would have been as follows (in thousands, except per unit amounts):

      No Partnership or Crosstex Energy, Inc. (CEI) options were granted to officers or employees in 2005. Stock-based compensation associated with the CEI option plan with respect to officers and employees is recorded by the Partnership since CEI has no operating activities, other than its interest in the Partnership.

      In 2004, 85,000 restricted shares in CEI were issued to members of management under its long-term incentive plan with an intrinsic value of $2,579,000. 80,000 of the CEI restricted shares vest over a five-year period and 5,000 of the restricted shares vest over a three-year period. The intrinsic value of the restricted shares is amortized into stock-based compensation expense over the vesting periods.

      In May 2005, the Partnership’s managing general partner amended its long-term incentive plan to increase the aggregate common unit options and restricted units under the plan from 1.4 million to 1.8 million.

      Basic earnings per unit was computed by dividing net income by the weighted average number of limited partner units outstanding for the three months ended March 31, 2005 and 2004. The computation of diluted earnings per unit further assumes the dilutive effect of unit options and restricted units.

      Effective March 29, 2004, the Partnership completed a two-for-one split on its outstanding limited partnership units. All unit amounts for prior periods presented herein have been restated to reflect this unit split.

CROSSTEX ENERGY, L.P.

Notes to Consolidated Financial Statements — (Continued)

      The following are the unit amounts used to compute the basic and diluted earnings per limited partner unit for the three months ended March 31, 2005 and 2004 (in thousands):

      All outstanding units were included in the computation of diluted earnings per unit.

      Net income is allocated to the general partner in an amount equal to its incentive distributions as described in Note (4). The remaining net income is allocated pro rata between the 2% general partner interest, the subordinated units, and the common units. The net income allocated to the general partner for incentive distributions was $1,998,000 and $953,000 for the three months ended March 31, 2005 and 2004, respectively.

      In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment (SFAS No. 123R), which requires that compensation related to all stock-based awards, including stock options, be recognized in the financial statements. This pronouncement replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees and will be effective beginning January 1, 2006. We have previously recorded stock compensation pursuant to the intrinsic value method under APB No. 25, whereby no compensation was recognized for most stock option awards. We expect that stock option grants will continue to be a significant part of employee compensation, and therefore, SFAS No. 123R may have a significant impact on our financial statements. Although we have not determined the impact of SFAS No. 123R, the pro forma effect of recording compensation for all stock awards at fair value utilizing the Black-Scholes method for the three months ended March 31, 2005 and 2004 resulted in a decrease in our net income of $68,000 and $53,000, respectively.