Page 1 of 29
                                                  Index to Exhibits-Pages 21-27

                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                    FORM 10-Q

(Mark One)
   [ X ]          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended   June 28, 1998

                                  OR

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

For the Transition period from             to

Commission file number    1-3634


                      CONE MILLS CORPORATION
        (Exact name of registrant as specified in its charter)

    North Carolina                                         56-0367025
(State or other jurisdiction of                            (I.R.S. Employer
 incorporation or organization)                             Identification No.)

3101 North Elm Street, Greensboro, North Carolina           27408
(Address of principal executive offices)                   (Zip Code)

                        (336) 379-6220
      (Registrant's telephone number, including area code)

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

Number of shares of common stock outstanding as of July 29, 1998:
26,160,033 shares.

                                                    1

<PAGE>


                            CONE MILLS CORPORATION

                                    INDEX

                                                                         Page
                                                                         Number

PART I.      FINANCIAL INFORMATION

Item 1.      Financial Statements

                 Consolidated Condensed Statements of Operations
                    Thirteen and twenty-six weeks ended
                    June 28, 1998 and June 29, 1997 (Unaudited).............3

                 Consolidated Condensed Balance Sheets
                    June 28, 1998 and June 29, 1997
                    (Unaudited) and December 28, 1997.......................4

                 Consolidated Condensed Statements of Cash Flows
                    Twenty-six weeks ended June 28, 1998
                    and June 29, 1997 (Unaudited)...........................5

                 Notes to Consolidated Condensed Financial Statements
                 (Unaudited)................................................6

Item 2.      Management's Discussion and Analysis of
                 Financial Condition and Results of Operations.............11


PART II.         OTHER INFORMATION

Item 1.      Legal Proceedings.............................................18
Item 4.      Submission of Matters to a Vote of Security Holders...........19
Item 5.      Other Information.............................................20
Item 6.      Exhibits and Reports on Form 8-K..............................20


                                    2

<PAGE>
PART I Item 1.
                  CONE MILLS CORPORATION AND SUBSIDIARIES
              CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                   (in thousands, except per share data)
<TABLE>
<S>                                              <C>             <C>             <C>             <C>

                                                  Thirteen        Thirteen        Twenty-Six      Twenty-Six
                                                  Weeks Ended     Weeks Ended     Weeks Ended     Weeks Ended
                                                  June 28, 1998   June 29, 1997   June 28, 1998   June 29, 1997
                                                  (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)

Net Sales                                         $  197,304      $  185,792      $  387,475      $  360,506

Operating Costs and Expenses:
  Cost of sales                                      163,352         156,286         323,198         304,345
  Selling and administrative                          20,813          20,778          40,592          39,082
  Depreciation                                         7,049           6,633          14,223          13,304
  Restructuring                                            -           1,154               -           1,809

                                                     191,214         184,851         378,013         358,540

Income from Operations                                 6,090             941           9,462           1,966

Other Income (Expense): 
  Interest income                                        751             631           1,362             819
  Interest expense                                    (4,174)         (3,724)         (7,721)         (7,407)

                                                      (3,423)         (3,093)         (6,359)         (6,588)

Income (Loss) before Income Taxes (Benefit) and
  Equity in Earnings (Losses) of Unconsolidated
  Affiliate                                            2,667          (2,152)          3,103          (4,622)

Income Taxes (Benefit)                                   880            (684)          1,024          (1,672)

Income (Loss) before Equity in Earnings (Losses)
  of Unconsolidated Affiliate                          1,787          (1,468)          2,079          (2,950)

Equity in Earnings (Losses) of Unconsolidated
  Affiliate                                            1,264             397           2,516            (116)

Net Income (Loss)                                 $    3,051       $  (1,071)      $   4,595       $  (3,066)

Income (Loss) Available to Common Shareholders    $    2,331       $  (1,826)      $   3,122       $  (4,541)

Earnings (Loss) Per Share - Basic and Diluted     $      .09       $    (.07)      $     .12       $    (.17)

Weighted Average Common Shares Outstanding:
  Basic                                               26,166          26,102          26,175          26,170
  Diluted                                             26,280          26,102          26,246          26,170

</TABLE>

See Notes to Consolidated Condensed Financial Statements.

                                      3
<PAGE>

                  CONE MILLS CORPORATION AND SUBSIDIARIES
                   CONSOLIDATED CONDENSED BALANCE SHEETS
              (in thousands, except share and par value data)

<TABLE>
<S>                                              <C>        <C>         <C> 
                                                   June 28,    June 29,  December 28,
                                                     1998        1997       1997
ASSETS                                           (Unaudited) (Unaudited)   (Note)
  Current Assets:
    Cash                                          $   1,609  $   4,999    $     856
    Accounts receivable, less allowance
      of $1,500                                      24,652     21,186       19,958
    Subordinated note receivable                     44,970     39,491       23,842
    Inventories                                     123,618    129,970      115,663
    Other current assets                             23,947     10,425       19,228

       Total Current Assets                         218,796    206,071      179,547

  Investments in Unconsolidated Affiliates           39,297     34,028       36,781
  Other Assets                                       36,354     38,982       38,431
  Property, Plant and Equipment                     251,821    239,633      251,887

                                                  $ 546,268  $ 518,714    $ 506,646

LIABILITIES AND STOCKHOLDERS' EQUITY
  Current Liabilities:
    Notes payable                                 $   1,500  $       -    $   4,500
    Current maturities of long-term debt             10,714     10,714       10,714
    Accounts payable                                 37,480     32,292       32,994
    Sundry accounts payable and accrued
      liabilities                                    47,757     49,519       49,588
    Deferred income taxes                            20,938     24,421       23,370

      Total Current Liabilities                     118,389    116,946      121,166

  Long-Term Debt                                    176,878    150,148      139,656
  Deferred Income Taxes                              41,964     38,300       38,523
  Other Liabilities                                  11,080     10,519       10,781

  Stockholders' Equity:
    Class A preferred stock - $100 par value;
      authorized 1,500,000 shares; issued and
      outstanding 383,948 shares                     38,395     38,395       38,395
    Class B preferred stock - no par value;
      authorized 5,000,000 shares                         -          -            -
    Common stock - $.10 par value; authorized
      42,700,000 shares; issued and outstanding
      26,165,933 shares; 1997, 26,099,533 shares
      and 26,201,633 shares                           2,617      2,610        2,620
    Capital in excess of par                         62,049     61,483       62,300
    Retained earnings                               104,089    108,811      102,449
    Deferred compensation - restricted stock           (655)         -         (740)
    Accumulated other comprehensive income           (8,538)    (8,498)      (8,504)

      Total Stockholders' Equity                    197,957    202,801      196,520

                                                  $ 546,268  $ 518,714    $ 506,646
</TABLE>
Note:  The balance sheet at December 28, 1997, has been derived from the audited
         financial statements at that date.

See Notes to Consolidated Condensed Financial Statements.
                                     4
<PAGE>

                 CONE MILLS CORPORATION AND SUBSIDIARIES
             CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                            (in thousands)

<TABLE>
<S>                                                           <C>             <C>
                                                               Twenty-Six      Twenty-Six
                                                               Weeks Ended     Weeks Ended
                                                               June 28,1998    June 29,1997
                                                               (Unaudited)     (Unaudited)

Cash Provided by (Used in) Operations                          $    (9,869)    $     2,316

Investing
  Proceeds from divestitures                                             -          19,529
  Proceeds from sale of property, plant and equipment                5,017           3,564
  Capital expenditures                                             (16,706)        (10,739)
  Other                                                                  -          (1,500)

    Cash provided by (used in) investing                           (11,689)         10,854

Financing
  Net payments under line of credit agreements                      (3,000)         (5,267)
  Increase (decrease) in checks issued in excess of deposits        (8,488)            522
  Proceeds from long-term debt borrowings                           37,000               -
  Dividends paid - Class A Preferred                                (2,955)         (2,829)
  Other                                                               (246)         (1,615)

    Cash provided by (used in) financing                            22,311          (9,189)

  Net change in cash                                                   753           3,981
Cash at Beginning of Period                                            856           1,018

Cash at End of Period                                          $     1,609     $     4,999



Supplemental Disclosures of Additional Cash Flow Information:

Cash payments for:

  Interest, net of interest capitalized                        $     7,393     $     7,489

  Income taxes, net of refunds                                 $       522     $    (3,409)

Supplemental Schedule of Noncash Investing and Financing Activities:

  Receivable recorded from divestitures                        $         -     $     2,298
</TABLE>


See Notes to Consolidated Condensed Financial Statements.

                                       5
<PAGE>

                     CONE MILLS CORPORATION AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                 June 28, 1998

Note 1.  Basis of Financial Statement Preparation

         The Cone  Mills  Corporation  (the  "Company")  consolidated  condensed
         financial statements for June 28, 1998 and June 29, 1997 are unaudited,
         but in the opinion of management  reflect all adjustments  necessary to
         present fairly the consolidated  condensed balance sheets of Cone Mills
         Corporation  and  Subsidiaries  at June 28, 1998 and June 29, 1997, and
         the related  consolidated  condensed  statements of operations  for the
         respective  thirteen and twenty-six  weeks ended June 28, 1998 and June
         29,  1997,  and cash flows for the  twenty-six  weeks then  ended.  All
         adjustments  are of a normal  recurring  nature.  The  results  are not
         necessarily indicative of the results to be expected for the full year.

         These  statements  should  be  read in  conjunction  with  the  audited
         financial statements and related notes included in the Company's annual
         report on Form 10-K for fiscal year 1997.

         Inventories  are  stated at the lower of cost or market.  The  last-in,
         first-out (LIFO) method is used to determine cost of most  domestically
         produced goods. The first-in,  first-out (FIFO) or average cost methods
         are used to determine cost of all other  inventories.  Because  amounts
         for  inventories   under  the  LIFO  method  are  based  on  an  annual
         determination of quantities as of the year-end, the inventories at June
         28,  1998  and  June  29,  1997  and  related  consolidated   condensed
         statements of  operations  for the thirteen and  twenty-six  weeks then
         ended are based on certain estimates relating to quantities and cost as
         of the end of the fiscal year.

Note 2.  Securitization of Accounts Receivable

         During  July 1998,  the  Receivables  Purchase  Agreement  between  the
         subsidiary of a major financial institution and Cone Receivables,  LLC,
         was increased from $40 million to $50 million.

                                        6
<PAGE>

Note 3.  Inventories

<TABLE>
<S>                                               <C>           <C>           <C>
(in thousands)                                       6/28/98       6/29/97       12/28/97

Greige and finished goods                          $  79,589     $  87,551      $  81,130
Work in process                                       10,602        12,405         11,260
Raw materials                                         20,664        16,972         11,122
Supplies and other                                    12,763        13,042         12,151
                                                     -------       -------        -------
                                                   $ 123,618     $ 129,970      $ 115,663
                                                     =======       =======        =======


Note 4.  Long-Term Debt

(in thousands)                                       6/28/98       6/29/97       12/28/97

Senior Note                                        $  53,572     $  64,286      $  53,572
Revolving Credit Agreement                            37,000             -              -
8 1/8% Debentures                                     97,020        96,576         96,798
                                                     -------       -------        -------
                                                     187,592       160,862        150,370
Less current maturities                               10,714        10,714         10,714
                                                     -------       -------        -------
                                                   $ 176,878     $ 150,148      $ 139,656
                                                     =======       =======        =======
</TABLE>

Effective  February  1998,  the  interest  rate  on the  Company's  Senior  Note
increased to 8.75%.  Interest  rates under the  Revolving  Credit  Agreement are
similar to the Company's unsecured short-term notes payable.

In July 1998,  the Company  entered into an interest rate swap  agreement with a
notional amount of $100 million and a term of seven years with a major financial
institution.  This  agreement  effectively  converts the 8 1/8%  Debentures to a
variable  interest  rate.  The interest  rate under the swap  agreement is reset
every six months with the initial  effective rate of 7.26% versus the fixed rate
of 8.125% on the  debentures.  The interest rate swap agreement also provides an
interest  rate cap at 8.125% for the first three years  adjusting  to 9.625% for
the balance of its term.


Note 5.  Class A Preferred Stock

The 1999 dividend rate for Class A Preferred  Stock is 7.50%,  payable March 31,
1999.

                                   7
<PAGE>

Note 6.  Earnings (Loss) Per Share

The following  table sets forth the  computation  of basic and diluted  earnings
(loss) per share ("EPS").
<TABLE>
<S>                                           <C>               <C>

(in thousands, except                           Thirteen          Thirteen
  per share data)                              Weeks Ended       Weeks Ended
                                                 6/28/98           6/29/97

Net income (loss)                               $  3,051          $ (1,071)
Preferred stock dividends                           (720)             (755)
                                                   -----             -----

Basic EPS - income (loss)
  available to common shareholders                 2,331            (1,826)

Effect of dilutive securities                          -                 -
                                                   -----             -----

Diluted EPS - income (loss)
  available to common shareholders
  after assumed conversions                     $  2,331          $ (1,826)
                                                   =====             =====


Determination of shares:

Basic EPS - weighted average shares               26,166            26,102

Effect of dilutive securities                        114                 -
                                                   -----             -----

Diluted EPS - adjusted weighted-
  average shares and assumed
  conversions                                     26,280            26,102
                                                  ======            ======


Earnings (loss) per share:
  Basic                                         $    .09          $  ( .07)
                                                  ======            ======
  Diluted                                       $    .09          $  ( .07)
                                                  ======            ======
</TABLE>

                                      8
<PAGE>

Note 6.  Earnings (Loss) Per Share

The following  table sets forth the  computation  of basic and diluted  earnings
(loss) per share ("EPS").

<TABLE>
<S>                                                <C>               <C>
(in thousands, except                               Twenty-Six         Twenty-Six
  per share data)                                   Weeks Ended       Weeks Ended
                                                      6/28/98           6/29/97

Net income (loss)                                    $  4,595          $ (3,066)
Preferred stock dividends                              (1,473)           (1,475)
                                                        -----             -----

Basic EPS - income (loss)
  available to common shareholders                      3,122            (4,541)

Effect of dilutive securities                               -                 -
                                                        -----             -----

Diluted EPS - income (loss)
  available to common shareholders
  after assumed conversions                          $  3,122          $ (4,541)
                                                        =====             =====


Determination of shares:

Basic EPS - weighted average shares                    26,175            26,170

Effect of dilutive securities                              71                 -
                                                        -----             -----

Diluted EPS - adjusted weighted-
  average shares and assumed
  conversions                                          26,246            26,170
                                                       ======            ======


Earnings (loss) per share:
  Basic                                              $    .12          $  ( .17)
                                                       ======            ======
  Diluted                                            $    .12          $  ( .17)
                                                       ======            ======
</TABLE>

Common  stock  options  outstanding  at June 29,  1997 were not  included in the
computation  of  diluted  earnings  per share  because  to do so would have been
antidilutive.

                                     9
<PAGE>


Note 7.  Recent Accounting Pronouncements

Beginning  in fiscal  year  1998,  the  Company  adopted  SFAS  130,  "Reporting
Comprehensive Income." Comprehensive income is the total of net income and other
changes  in  equity,  except  those  resulting  from  investments  by owners and
distribution to owners not reflected in net income.  Total comprehensive  income
for the periods was as follows:

<TABLE>
<S>                                            <C>              <C>
(in thousands)                                   Thirteen         Thirteen
                                                Weeks Ended      Weeks Ended
                                                  6/28/98          6/29/97

Net income (loss)                                 $ 3,051         $ (1,071)
Other comprehensive income (loss),
  currency translation adjustment                     ( 7)             (15)
                                                    -----            -----
                                                  $ 3,044         $ (1,086)
                                                    =====            =====

                                                  Twenty-Six      Twenty-Six
                                                 Weeks Ended     Weeks Ended
                                                   6/28/98         6/29/97

Net income (loss)                                 $ 4,595         $ (3,066)
Other comprehensive income (loss),
  currency translation adjustment                     (34)             (23)
                                                    -----            -----
                                                  $ 4,561         $ (3,089)
                                                    =====            =====
</TABLE>
                                      10
<PAGE>

Item 2.
                            MANAGEMENT'S DISCUSSION
                     AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Second Quarter Ended June 28, 1998 Compared with Second Quarter
Ended June 29, 1997.

For the second quarter of 1998, Cone Mills had sales of $197.3 million, up 6.2%,
as compared with sales of $185.8 million for the second quarter of 1997.  Higher
sales of  denim  products  and all  home  furnishings  units  accounted  for the
increase.  Lower specialty  sportswear  sales  partially  offset the other sales
increases.  International  sales were $46.9 million,  or 24% of total sales,  as
compared with $43.0 million, or 23% of sales, for the second quarter of 1997.

Gross  profit for the  second  quarter of 1998 (net sales less cost of sales and
depreciation)  was 13.6% of sales, as compared with 12.3% for the previous year.
The increase was  primarily the result of the improved  sales volume,  lower raw
material costs and higher  capacity  utilization  partially  offset by operating
performance of the Carlisle Finishing plant.

Segment Information.  Cone operates in two principal business segments,  apparel
fabrics and home  furnishings  products.  The following table sets forth certain
net sales and operating income (loss) information.
<TABLE>
<S>                          <C>        <C>        <C>        <C>
                                           Second Quarter
                                      1998                 1997
                                      (Dollar amounts in millions)
NET SALES
     Apparel                  $ 165.3     83.8%     $ 159.1     85.6%
     Home Furnishings(1)         32.0     16.2         26.7     14.4
                                -----     ----        -----    -----
         Total                $ 197.3    100.0%     $ 185.8    100.0%
                                =====    =====        =====    =====

OPERATING INCOME (LOSS)(2)
     Apparel                  $   7.1      4.3%     $   6.2      3.9%
     Home Furnishings            (0.1)    (0.4)        (3.2)   (12.1)
     Restructuring                  -        -         (1.2)       -
</TABLE>

(1)      Home furnishings includes net sales of $0.8 million for a business unit
         sold in 1997.
(2)      Operating   income  (loss)   excludes   general   corporate   expenses.
         Percentages reflect operating income (loss) as a percentage of

                                     11
<PAGE>



         segment net sales.

     Apparel  Fabrics.  Apparel  fabrics segment sales for the second quarter of
     1998 were $165.3 million,  up 4.0% from second quarter 1997 sales of $159.1
     million.  Increased  sales of denims,  partially  offset by lower specialty
     sportswear  sales,  accounted for the  increase.  Average denim prices were
     essentially  flat year over  year.  Cotton  costs  were down in the  second
     quarter of 1998,  reflecting  more  favorable  world cotton  prices.  Denim
     manufacturing  facilities operated at capacity during the second quarter of
     1998.

     For the second  quarter of 1998,  the apparel  fabric segment had operating
     income of $7.1 million, or 4.3% of sales, as compared with $6.2 million, or
     3.9% of sales, in the second quarter of 1997.  Improved  profits from denim
     operations  in the  second  quarter  of 1998 were  substantially  offset by
     unfavorable specialty sportswear results.

     Home Furnishings.  For the second quarter of 1998, home furnishings segment
     sales were $32.0  million,  up 19.9% as compared with $26.7 million for the
     second  quarter of 1997.  Excluding  operating  units sold in 1997,  second
     quarter  1998  sales  were  up  approximately   23%.  Stronger   commission
     finishing,  jacquard fabric and John Wolf sales accounted for the increase.
     Home furnishings had an operating loss of $0.1 million,  as compared with a
     loss of $3.2 million for the second quarter of 1997.  All home  furnishings
     units  substantially  improved  operating  results in 1998 as compared with
     1997.

Total  Company  selling and  administrative  expenses were $20.8 million for the
second  quarter of 1998,  essentially  the same as the  second  quarter of 1997.
Selling and administrative expenses were 10.5% of sales in the second quarter of
1998, as compared with 11.2% in the second quarter of 1997.

Interest expense for the second quarter of 1998 was up $0.5 million, as compared
to the second quarter of 1997,  primarily the result of additional  borrowing to
support increases in working capital.

Income taxes as a percentage  of pre-tax  income for the second  quarter of 1998
were 33.0% reflecting the tax benefit  resulting from operation of the Company's
foreign sales corporation.

Equity in earnings of Parras Cone,  the joint venture plant in Mexico,  was $1.3
million for the second  quarter of 1998,  as compared  with $0.4 million for the
second quarter of 1997. The 1998 results

                                      12
<PAGE>

reflect a fuller  operating  schedule  compared  with the 1997 period,  improved
operating efficiencies and lower cotton costs.

Cone Mills had net income for the  second  quarter of 1998 of $3.1  million,  or
$.09 per share after preferred  dividends.  For comparison,  second quarter 1997
had a net loss of $1.1 million, or $.07 per share, including a pre-tax charge of
$1.2 million related to the consolidation of the Granite and Carlisle  finishing
operations.

The Company  continues to experience  strong denim sales and sales  increases in
home furnishings  operations as the third quarter of 1998 begins.  The Company's
short-term   operating   imperatives  are  effective   marketing  for  specialty
sportswear fabrics and satisfactory  manufacturing results from its Carlisle and
Salisbury facilities.

Six Months Ended June 28, 1998 Compared with Six Months Ended June 29, 1997

For the first six months of 1998, Cone Mills experienced strong denim demand and
better market conditions in decorative print fabrics. However, for the first six
months of 1997, Cone Mills had value-added denim inventory  adjustments and weak
fashion demand for decorative prints.

For the first six  months of 1998,  Cone Mills had sales of $387.5  million,  up
7.5%, as compared with sales of $360.5 million for the first half of 1997. After
eliminating  the sales of  businesses  which  were sold in 1997,  sales  were up
approximately  9%.  Higher  sales  of denim  products,  finishing  services  and
jacquard fabrics accounted for the increase.  Lower specialty  sportswear sales,
primarily shirting fabrics, partially offset the sales increases.  International
sales were 25% of total sales, as compared with 24% of sales,  for the first six
months of 1997.

Gross  profit for the first six months of 1998 (net sales less cost of sales and
depreciation)  was 12.9% of sales, as compared with 11.9% for the previous year.
The increase was  primarily the result of the improved  sales volume,  lower raw
material costs and higher  capacity  utilization  partially  offset by operating
performance of the Carlisle Finishing plant.

Segment Information.  Cone operates in two principal business segments,  apparel
fabrics and home  furnishings  products.  The following table sets forth certain
net sales and operating income (loss) information.

                                      13
<PAGE>
<TABLE>
<S>                        <C>        <C>       <C>        <C>

                                           Six Months
                                           ----------
                                   1998                 1997
                                   ----                 ----
                                 (Dollar amounts in millions)
NET SALES
     Apparel(1)             $ 323.5     83.5%    $ 307.4     85.3%
     Home Furnishings(2)       64.0     16.5        53.1     14.7
                              -----     ----       -----    -----
         Total              $ 387.5    100.0%    $ 360.5    100.0%
                              =====    =====       =====    =====

OPERATING INCOME (LOSS)(3)
     Apparel                $  13.9      4.3%     $ 12.3      4.0%
     Home Furnishings          (2.3)    (3.7)       (6.8)   (12.7)
     Restructuring                -        -        (1.8)       -
</TABLE>

(1)      Apparel includes net sales of $2.7 million for a business unit
         sold in 1997.
(2)      Home furnishings  includes net sales of $2.2 million for business units
         sold in 1997.
(3)      Operating   income  (loss)   excludes   general   corporate   expenses.
         Percentages  reflect operating income (loss) as a percentage of segment
         net sales.

     Apparel Fabrics.  Apparel fabrics segment sales for the first six months of
     1998 were  $323.5  million,  up 5.2% from  first  half 1997 sales of $307.4
     million.  Increased  sales of denims,  partially  offset by lower specialty
     sportswear  sales,  accounted for the  increase.  Average denim prices were
     essentially  flat year over year.  Cotton costs were lower in the first six
     months of 1998,  reflecting  more  favorable  world  cotton  prices.  Denim
     manufacturing facilities operated at capacity during the 1998 period.

     For the first six months of 1998, the apparel fabrics segment had operating
     income of $13.9 million,  or 4.3% of sales, as compared with $12.3 million,
     or 4.0% of sales,  in the first half of 1997.  Improved  profits from denim
     operations  in the first six  months of 1998 were  substantially  offset by
     unfavorable specialty sportswear results.

     Home  Furnishings.  For the first  six  months  of 1998,  home  furnishings
     segment sales were $64.0  million,  up 20.5% as compared with $53.1 million
     for the first six months of 1997.  Excluding  operating units sold in 1997,
     first  half 1998  sales  were up  approximately  26%.  Stronger  commission
     finishing  and  jacquard  fabric sales  accounted  for the  increase.  Home
     furnishings had an operating loss of $2.3 million,  as compared with a loss
     of $6.8 million for the first six months of 1997.

                                      14
<PAGE>

     With the exception of the Carlisle  Finishing plant, home furnishings units
     substantially improved operating results in 1998 as compared with 1997.

Total Company selling and administrative  expenses increased slightly from $39.1
million  for the first six months of 1997 to $40.6  million in the first half of
1998,  which  included  the expenses  associated  with the  Company's  increased
marketing and merchandising  efforts.  Selling and administrative  expenses were
10.5% of sales in the first six months of 1998,  as  compared  with 10.8% in the
first half of 1997.

Cone Mills had net income for the first six months of 1998 of $4.6  million,  or
$.12 per share after preferred dividends. For comparison,  first half 1997 had a
net loss of $3.1 million, or $.17 per share,  including a pre-tax charge of $1.8
million  related to the  consolidation  of the  Granite and  Carlisle  finishing
operations.

Equity in earnings of Parras Cone,  the joint venture plant in Mexico,  was $2.5
million  for the  first  six  months of 1998,  as  compared  with a loss of $0.1
million for the first half of 1997. The 1998 results reflect a fuller  operating
schedule  compared with the 1997 period,  improved  operating  efficiencies  and
lower cotton costs.

Liquidity and Capital Resources

The Company's principal long-term capital components consist of debt outstanding
under its Senior Note, its 8 1/8% Debentures and stockholders'  equity.  Primary
sources of liquidity are internally  generated  funds, an $80 million  Revolving
Credit  Facility  and  the  $50  million  Receivables  Purchase  Agreement.  The
Receivables Purchase Agreement,  a one-year facility,  was renewed in March 1998
and  increased  from $40.0  million to $50.0  million in July 1998.  On June 28,
1998,  the Company had funds  available  of $43.0  million  under its  Revolving
Credit Facility. During the first six months of 1998, the Company generated cash
from operating activities before changes in working capital of $16.3 million, as
compared with $9.5 million for the first half of 1997. Working capital increases
in 1998,  primarily  accounts  receivable and  inventories,  were $26.2 million.
Other sources of cash included  proceeds of $5.0 million  realized from the sale
of old manufacturing equipment.  Uses of cash included $16.7 million for capital
expenditures, and $3.0 million for preferred stock dividends.

The  Company  believes  that  internally  generated  operating  funds  and funds
available  under its credit  facilities will be sufficient to meet its needs for
working capital, capital spending, potential

                                       15
<PAGE>

stock repurchases and financing for the foreseeable future.

On June 28, 1998, the Company's  long-term capital structure consisted of $176.9
million of  long-term  debt and  $198.0  million of  stockholders'  equity.  For
comparison,  on June 29, 1997,  the Company had $150.1 million of long-term debt
and $202.8 million of stockholders'  equity.  Long-term debt (including  current
maturities  of  long-term   debt)  as  a  percentage   of  long-term   debt  and
stockholders'  equity was 49% at June 28, 1998, as compared with 44% at June 29,
1997.

Accounts and note receivable on June 28, 1998,  were $69.6 million,  an increase
of $8.9 million,  as compared with June 29, 1997.  This increase in accounts and
note receivable was primarily due to increases in sales. Receivables,  including
those sold pursuant to the Receivables  Purchase Agreement,  represented 51 days
of sales outstanding at June 28, 1998 and 50 days at June 29, 1997.

Inventories on June 28, 1998, were $123.6  million,  down $6.4 million from June
29,  1997.  The  decrease  was  primarily  due to  lower  denim  finished  goods
inventories which were partially offset by increases in raw material levels.

Capital spending in the first six months of 1998 was $16.7 million,  as compared
with $10.7  million  for the first  half of 1997.  Capital  spending  in 1998 is
expected to be approximately $37 million.  Projects include new weaving machines
and link ring  spinning for the White Oak denim plant and  additional  looms for
the jacquard facility.

The Company recognizes the business  implications  regarding the Year 2000 as it
relates to computer  programs  and  software  systems.  The Company is currently
adopting new software and  modifying  existing  software to ensure that business
operations are not negatively  impacted by the millennium change. The Company is
coordinating  Year 2000  readiness  with other entities with which it interacts,
both  domestically and globally,  including  suppliers,  customers and financial
service  organizations.  While there can be no  assurance  that all such actions
will  be   successful,   management   does  not  expect  that  either  costs  of
modifications   or   implementation   of  any   unsuccessful   modifications  or
implementation  should have a material adverse effect on the financial condition
of the Company.

Federal, state and local regulations relating to the workplace and the discharge
of materials into the environment  continue to change and,  consequently,  it is
difficult to gauge the total future impact of such  regulations  on the Company.
Existing government regulations

                                     16
<PAGE>

are not  expected  to  cause a  material  change  in the  Company's  competitive
position, operating results or planned capital expenditures.  The Company has an
active  environmental  committee which fosters protection of the environment and
compliance with laws.

The Company is a party to various legal claims and actions.  Management believes
that none of these claims or actions,  either  individually or in the aggregate,
will have a material adverse effect on the financial condition of the Company.

"Safe  Harbor"  Statement  under Section 27A of the  Securities  Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
         Except for the historical information presented,  the matters disclosed
         in the foregoing discussion and analysis and other parts of this report
         include forward-  looking  statements.  These statements  represent the
         Company's  current  judgment on the future and are subject to risks and
         uncertainties  that could cause  actual  results to differ  materially.
         Such factors include,  without  limitation:  (i) the demand for textile
         products, including the Company's products, will vary with the U.S. and
         world  business   cycles,   imbalances   between  consumer  demand  and
         inventories  of  retailers  and  manufacturers  and  changes in fashion
         trends,  (ii) the highly competitive nature of the textile industry and
         the  possible  effects  of reduced  import  protection  and  free-trade
         initiatives, (iii) the unpredictability of the cost and availability of
         cotton,  the Company's  principal raw material,  and (iv) the Company's
         relationships  with Levi Strauss as its major  customer.  For a further
         description of these risks see the Company's  1997 Form 10-K,  "Item 1.
         Business Competition,  -Raw Materials and -Customers" and "Management's
         Discussion   and  Analysis  of  Results  of  Operations  and  Financial
         Condition  --  Overview"  of  the  Company's   1997  Annual  Report  to
         Shareholders  incorporated  by reference into Item 7. of the Form 10-K.
         Other risks and uncertainties may be described from time to time in the
         Company's  other reports and filings with the  Securities  and Exchange
         Commission.

                                      17
<PAGE>

                                      PART II

Item 1.  Legal Proceedings

In November 1988,  William J. Elmore and Wayne Comer (the  "Plaintiffs")  former
employees of the Company, instituted a class action suit against the Company and
certain other  defendants in which the  Plaintiffs  asserted a variety of claims
related to the Cone Mills  Corporation  1983 ESOP (the "1983  ESOP") and certain
other  employee  benefit  plans  maintained by the Company.  In March 1992,  the
United States District Court in Greenville, South Carolina entered a judgment in
the amount of $15.5  million  (including an  attorneys'  fee award)  against the
Company  with  respect  to  an  alleged  promise  to  make  additional   Company
contributions  to the 1983 ESOP and all claims  unrelated to the alleged promise
were dismissed.  The Company,  certain individual  defendants and the Plaintiffs
appealed.

On May 6, 1994,  the United  States  Court of  Appeals  for the Fourth  Circuit,
sitting en banc, affirmed the prior conclusion of a panel of three of its judges
and unanimously reversed the $15.5 million judgment and unanimously affirmed all
of the District Court's rulings in favor of the Company.  However,  the Court of
Appeals affirmed, by an equally divided court, the District Court's holding that
Plaintiffs  should be  allowed  to proceed  on an  alternative  theory  whether,
subject to proof of  detrimental  reliance,  Plaintiffs  could  establish that a
letter to  salaried  employees  on  December  15,  1983  created an  enforceable
obligation  that  could  allow  recovery  on a  theory  of  equitable  estoppel.
Accordingly,  the case was remanded to the District Court for a determination of
whether the Plaintiffs could establish detrimental reliance creating estoppel of
the Company.

On April 19,  1995,  the  District  Court  granted a motion by the  Company  for
summary judgment on the issues of equitable estoppel and third-party beneficiary
of contract  which had been  remanded  to it by the Court of Appeals.  The Court
ruled that the  Plaintiffs  could not forecast  necessary  proof of  detrimental
reliance.  The District Court,  however,  granted Plaintiffs motion to amend the
complaint insofar as they sought to pursue a "new" claim for unjust  enrichment,
but  denied  their  motion  to amend so far as they  sought  to add  claims  for
promissory  estoppel  and  unilateral  contract.  The court  further  denied the
Company's motion to decertify the class.

The  District  Court  held a hearing  on July 24,  1995 to decide on the  merits
Plaintiffs' lone remaining claim of unjust enrichment, and

                                                    18
<PAGE>

in an order entered  September 25, 1995, the District Court dismissed that claim
with  prejudice.  On October 20, 1995, the  Plaintiffs  appealed to the Court of
Appeals  from the April 19, 1995 and  September  25, 1995 orders of the District
Court.  Oral argument on Plaintiffs'  appeal was held in the Court of Appeals on
October 31, 1996. Due to the uncertainties  inherent in the litigation  process,
it is not possible to predict the ultimate outcome of this lawsuit. However, the
Company  has  defended  this  matter  vigorously,  and it is the  opinion of the
Company's  management  that the  probability  is remote that this lawsuit,  when
finally  concluded,  will  have a  material  adverse  effect  on  the  Company's
financial condition or results of operations.

The Company and its  subsidiaries  are involved in legal  proceedings and claims
arising in the ordinary  course of business.  Although there can be no assurance
as to the ultimate  disposition of these matters,  management  believes that the
probable  resolution  of such  contingencies  shall not have a material  adverse
effect on the financial condition of the Company.

Item 4.  Submission of Matters to a Vote of Security Holders

Cone Mills  Corporation's  Annual Meeting of Shareholders was held May 12, 1998.
The proposals voted upon and the results of the voting were as follows:

<TABLE>
<S>                                 <C>                <C>              <C>               <C>            <C>    
                                                                                                           Broker
                                        For             Against          Abstentions       Withheld       Non-Votes

1.     Election of three Class III directors for a three-year term:

Doris R. Bray                        22,889,337                0                   0        165,955           n/a
Dewey L. Trogdon                     22,881,400                0                   0        173,892           n/a
Cyrus C. Wilson                      22,905,707                0                   0        149,585           n/a

2.     Election on one Class I director for a one-year term:

Nicholas Shreiber                    22,907,946                0                   0        147,346           n/a

3.     Ratification  of  the   appointment  of  McGladrey  &  Pullen,   LLP,  as
       independent auditors for the Corporation for the current year:

                                     22,906,080           80,226              68,986              0           n/a

4.     Consideration   of  shareholder   proposal  for  adoption  of  nonbinding
       resolution   urging  the  directors  to  arrange  for  the  sale  of  the
       Corporation:

                                      2,127,463       17,176,766             286,218              0           n/a
</TABLE>

                                         19
<PAGE>


Item 5.  Other Information

Notice of a matter to be presented by a  shareholder  for  consideration  at the
1999 annual meeting other than pursuant to Rule 14a-8 of the Securities Exchange
Act of 1934 must be received by the Company prior to February 15, 1999.  Failure
to give timely notice will result in the proxy statement relating to the meeting
not  including  information  on the matter or the  manner in which  management's
proxies will vote on the matter and the proxies received by management will have
discretionary authority to vote on such matter.


Item 6.  Exhibits and Reports on Form 8-K

         (a)     The  exhibits to this Form 10-Q are listed in the  accompanying
                 Index to Exhibits.
         (b)     Reports on Form 8-K.
                 None

                                      20
<PAGE>

Exhibit                                                             Sequential
  No.            Description                                          Page No.

*2.1(a)          Purchase  Agreement between Registrant
                 and Cone Receivables LLC dated  as of
                 March 25, 1997, filed as Exhibit 2.1(l)
                 to Registrant's report on Form 10-Q for
                 the quarter ended March 30, 1997.

*2.1(b)          Receivables Purchase Agreement dated
                 as of March 25, 1997, among Cone
                 Receivables LLC, as Seller, the
                 Registrant, as Servicer, and
                 Delaware Funding Corporation, as
                 buyer, filed as Exhibit 2.1(m) to
                 Registrant's report on Form 10-Q
                 for the quarter ended March 30, 1997.

*2.1(c)          Amendment to Receivables Purchase
                 Agreement dated March 24, 1998,
                 between the Registrant and Delaware
                 Funding Corporation, filed as Exhibit
                 2.1(c) to Registrant's report on
                 Form 10-Q for the quarter ending
                 March 29, 1998.

*2.2(a)          Investment Agreement dated as of
                 June 18, 1993, among Compania Industrial
                 de Parras, S.A. de C.V., Sr. Rodolfo
                 Garcia Muriel, and Cone Mills
                 Corporation, filed as Exhibit 2.2(a)
                 to Registrant's report on Form 10-Q for
                 the quarter ended July 4, 1993, with
                 exhibits herein numbered 2.2(b),(c),
                 (d), (f), (g), and (j) attached.

*2.2(b)          Commercial Agreement dated as of June
                 25, 1993, among Compania Industrial de
                 Parras, S.A. de C.V., Cone Mills
                 Corporation and Parras Cone de Mexico,
                 S.A., filed as Exhibit 2.2(b) to
                 Registrant's report on Form 10-Q for the
                 quarter ended July 4, 1993.

*2.2(c)          Guaranty Agreement dated as of June 25,
                 1993, between Cone Mills Corporation and
                 Compania Industrial de Parras, S.A.

                                                    21
<PAGE>

Exhibit                                                            Sequential
  No.            Description                                         Page No.

                 de C.V., filed as Exhibit 2.2(c) to
                 Registrant's report on Form
                 10-Q for the quarter ended July 4, 1993.

*2.2(d)          Joint Venture Agreement dated as of
                 June 25, 1993, between Compania
                 Industrial de Parras, S.A. de C.V.,
                 and Cone Mills (Mexico), S.A. de C.V.
                 filed as Exhibit 2.2(d) to
                 Registrant's report on Form 10-Q for
                 the quarter ended July 4, 1993.

*2.2(e)          First Amendment to Joint Venture
                 Agreement dated as of June 14, 1995,
                 between Compania Industrial de Parras,
                 S.A. de C.V., and Cone Mills (Mexico),
                 S.A. de C.V., filed as Exhibit 2.2(e)
                 to the Registrant's report on Form 10-Q
                 for the quarter ended July 2, 1995.

*2.2(f)          Joint Venture Registration Rights
                 Agreement dated as of June 25, 1993,
                 among Parras Cone de Mexico, S.A.,
                 Compania Industrial de Parras, S.A. de
                 C.V. and Cone Mills (Mexico),
                 S.A. de C.V. filed as Exhibit 2.2(e)
                 to Registrant's report on Form 10-Q
                 for the quarter ended July 4, 1993.

*2.2(g)          Parras Registration Rights Agreement
                 dated as of June 25, 1993, between Compania
                 Industrial de Parras, S.A. de C.V. and
                 Cone Mills Corporation filed as Exhibit
                 2.2(f) to the Registrant's report on Form
                 10-Q for the quarter ended July 4, 1993.

*2.2(h)          Guaranty Agreement dated as of June 14,
                 1995, between Compania Industrial de
                 Parras, S.A. de C.V. and Cone Mills
                 Corporation filed as Exhibit 2.2(h) to
                 the Registrant's report on Form 10-Q
                 for the quarter ended July 2, 1995.

                                      22
<PAGE>

Exhibit                                                             Sequential
  No.            Description                                          Page No.

*2.2(i)          Guaranty Agreement dated as of June 15,
                 1995, between Cone Mills Corporation and
                 Morgan Guaranty Trust Company of New York
                 filed as Exhibit 2.2(i) to the Registrant's
                 report on Form 10-Q for the quarter ended
                 July 2, 1995.

*2.2(j)          Support Agreement dated as of June 25,
                 1993, among Cone Mills Corporation, Sr.
                 Rodolfo L. Garcia, Sr. Rodolfo Garcia
                 Muriel and certain other person listed
                 herein ("private stockholders") filed
                 as Exhibit 2.2(g) to Registrant's
                 report on Form 10-Q for the quarter
                 ended July 4, 1993.

*2.2(k)          Call Option dated September 25, 1995,
                 between  Registrant and SMM Trust, 1995
                 - M, a Delaware business trust, filed as
                 Exhibit 2.2(k) to the Registrant's report
                 on Form 10-Q for the quarter ended October
                 1, 1995.

*2.2(l)          Put Option dated September 25, 1995, between
                 Registrant and SMM Trust, 1995 - M, a Delaware 
                 business trust, filed as Exhibit 2.2(l) to the
                 Registrant's  report on Form 10-Q for the
                 quarter ended October 1, 1995.

*2.2(m)          Letter Agreement dated January 11, 1996 among
                 Registrant, Rodolfo Garcia Muriel, and Compania
                 Industrial de Parras, S.A.de C.V., filed as
                 Exhibit 2.2(m) to the Registrant's  report on
                 Form 10-K for the year ended December 31, 1995.

*4.1             Restated Articles of Incorporation of the
                 Registrant effective August 25, 1993, filed as
                 Exhibit 4.1 to Registrant's report on
                 Form 10-Q for the quarter ended October 3, 1993.

                                      23
<PAGE>

Exhibit                                                             Sequential
  No.            Description                                          Page No.

*4.2             Amended and Restated Bylaws of Registrant,
                 Effective June 18, 1992, filed as Exhibit
                 3.5 to the Registrant's Registration
                 Statement on Form S-1 (File No. 33-46907).

*4.3             Note Agreement dated as of August 13, 1992,
                 between Cone Mills Corporation and The Prudential
                 Insurance  Company of America, with form of 8%
                 promissory note attached, filed as Exhibit 4.01
                 to the Registrant's report on Form 8-K dated
                 August 13, 1992.

*4.3(a)          Letter Agreement dated September 11, 1992,
                 amending the Note Agreement dated August 13,
                 1992, between the Registrant and The Prudential
                 Insurance Company of America filed as Exhibit
                 4.2 to the Registrant's report on Form 8-K
                 dated March 1, 1995.

*4.3(b)          Letter Agreement dated July 19, 1993,
                 amending the Note Agreement dated
                 August 13, 1992, between the Registrant
                 and The Prudential Insurance Company of
                 America filed as Exhibit 4.3 to the
                 Registrant's report on Form 8-K dated
                 March 1, 1995.

*4.3(c)          Letter Agreement dated June 30, 1994,
                 amending the Note Agreement dated
                 August 13, 1992, between the Registrant
                 and The Prudential Insurance Company of
                 America filed as Exhibit 4.4 to the
                 Registrant's report on Form 8-K dated
                 March 1, 1995.

*4.3(d)          Letter Agreement dated November 14, 1994,
                 amending the Note Agreement dated
                 August 13, 1992, between the Registrant
                 and The Prudential Insurance Company of
                 America filed as Exhibit 4.5 to the
                 Registrant's report on Form 8-K dated
                 March 1, 1995.
  
                                    24
<PAGE>

Exhibit                                                            Sequential
  No.            Description                                         Page No.

*4.3(e)          Letter Agreement dated as of June 30,
                 1995, amending the Note Agreement dated
                 August 13, 1992, between the Registrant
                 and The Prudential Insurance Company
                 of America filed as Exhibit 4.3(e) to
                 the Registrant's report on Form 10-Q
                 for the quarter ended July 2, 1995.

*4.3(f)          Letter Agreement dated as of June 30,
                 1995, between the Registrant and
                 The Prudential Insurance Company
                 of America superseding Letter Agreement
                 filed as Exhibit 4.3(e) to the
                 Registrant's report on Form 10-Q
                 for the quarter ended July 2, 1995.

*4.3(g)          Letter Agreement dated as of March 30, 1996,
                 between  the Registrant and The Prudential
                 Insurance  Company  of America filed as
                 Exhibit 4.3(g) to the Registrant's report on
                 Form 10-Q for the quarter ended March 31, 1996.

*4.3(h)          Letter Agreement dated as of January 31, 1997,
                 between the Registrant and The Prudential
                 Insurance  Company  of America filed as Exhibit
                 4.3(h) to the Registrant's report on Form 10-K
                 for the year ended December 29, 1996.

*4.3(i)          Letter Agreement dated as of July 31, 1997,
                 between the Registrant and the Prudential
                 Insurance Company of America, filed as Exhibit
                 4.3(i) to the Registrant's report on Form 10-Q
                 for the quarter ended September 28, 1997.

*4.3(j)          Modification to Note Agreement dated as of
                 February 14, 1998, between the Registrant and
                 The Prudential Insurance Company of America,
                 filed as Exhibit 4.3(j) to Registrant's report
                 on Form 10-Q for the quarter ending March 29, 1998.

                                     25
<PAGE>

Exhibit                                                             Sequential
  No.            Description                                          Page No.

*4.4             Credit Agreement dated August 7, 1997, among
                 the Registrant, various banks and Morgan
                 Guaranty Trust Company of New York as agent,
                 filed as Exhibit 4.4 to the Registrant's report
                 on Form 10-Q for the quarter ended September
                 28, 1997.

*4.5             Specimen Class A Preferred Stock
                 Certificate, filed as Exhibit 4.5
                 to the Registrant's Registration
                 Statement on Form S-1(File No. 33-46907).

*4.6             Specimen Common Stock Certificate,
                 effective June 18, 1992, filed as
                 Exhibit 4.7 to the Registrant's
                 Registration Statement on Form S-1
                 (File No. 33-46907).

*4.8             Cone Mills Corporation 1983 ESOP as amended
                 and restated effective December 1, 1994, filed
                 as Exhibit 4.9 to the Registrant's report on
                 Form 10-K for year ended January  1, 1995.

*4.8(a)          First Amendment to the Cone Mills Corporation
                 1983 ESOP dated May 9, 1995, filed as Exhibit
                 4.9(a) to the Registrant's report on Form 10-K
                 for year ended December 31, 1995.

*4.8(b)          Second Amendment to the Cone Mills Corporation
                 1983 ESOP dated December 5, 1995, filed as
                 Exhibit 4.9(b) to the  Registrant's report on
                 Form 10-K for year ended December 31, 1995.

*4.8(c)          Third Amendment to the Cone Mills Corporation 1983
                 ESOP dated August 7, 1997, filed as Exhibit 4.8(c)
                 to the  Registrant's report on Form 10-Q for the
                 quarter ended September 28, 1997.

                                     26
<PAGE>

Exhibit                                                             Sequential
  No.            Description                                          Page No.

*4.8(d)          Fourth Amendment to the Cone Mills Corporation
                 1983 ESOP dated December 4, 1997, filed as
                 Exhibit 4.8(d) to the  Registrant's report on
                 Form 10-K for the year ended December 28, 1997.

*4.9             Indenture dated as of February 14,
                 1995, between Cone Mills Corporation
                 and Wachovia Bank of North Carolina,
                 N.A. as Trustee, (Bank of New York is
                 successor Trustee)filed as Exhibit 4.1
                 to Registrant's Registration Statement
                 on Form S-3 (File No. 33-57713).

 27              Financial Data Schedule                               29

* Incorporated by reference to the statement or report indicated.


                                      27
<PAGE>


                                  SIGNATURES


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



                                              CONE MILLS CORPORATION
                                              (Registrant)





Date  August 10, 1998                          /s/ Anthony L. Furr
                                               Anthony L. Furr
                                               Vice President and
                                               Chief Financial Officer


                                       28