<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-K

(Mark One)

   [X]  Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
        Act of 1934. 

                    For the fiscal year ended: June 30, 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 0-25012

                                  CENSTOR CORP.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                    <C>

             California                                    94-2775712
   (State or other jurisdiction of                      (I.R.S. Employer
    incorporation or organization)                    Identification Number)
        

540 N. Santa Cruz Ave., #277, Los Gatos                        95030
(address of principal executive offices)                     (zip code)
</TABLE>


       Registrant's telephone number, including area code: (408) 298-8400

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                      Series B Convertible Preferred Stock

        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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

        The aggregate market value of voting stock held by non-affiliates of the
registrant as of September 15, 1998 was $35,833,788. This valuation is based on
the fair market value of the Registrant's stock as determined by the
Registrant's Board of Directors at the time of issuance of such stock and may
not reflect current fair market value.

        At September 15, 1998 registrant had outstanding 8,523,751 shares of
Common Stock.


                                      -1-
<PAGE>   2

                                     PART I

ITEM 1. BUSINESS

        The statements in this Form 10-K that relate to future plans, events or
performance are forward-looking statements. Actual results could differ
materially due to a variety of important factors, including for example, the
Company's ability to exploit its portfolio of licenses, failure of the
Company's licensees to perform under existing or future licenses, the
development of competing technology and the risks associated with protecting
the Company's intellectual property rights from adverse claims. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation to
publicly release the result of any revisions to these forward looking
statements that may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.

        GENERAL

        Censtor was incorporated in 1981, and until early calendar 1996, had
been focused on developing technology for and manufacturing high performance
contact recording heads and media for the computer disk drive industry. The
Company was unable to raise the capital required to pursue its former strategy
of manufacturing contact recording heads and, accordingly, on July 18, 1996, the
Company completed a transaction with Read-Rite Corporation ("Read-Rite") to
concentrate its efforts on licensing rather than licensing and manufacturing.
The transaction with Read-Rite (the "Read-Rite Transaction") involved the
purchase by Read-Rite of Censtor's manufacturing and research and development
operations including the tangible assets, contracts and lease liabilities
related thereto together with a grant by Censtor to Read-Rite of a non-exclusive
license to Censtor's patents and other intellectual property rights related to
the Company's technology.

        The Company owns or has applied for fundamental patents pertaining to
micro-miniature, low-cost read/write heads and special surface treatments for
disk media that allow continuous head/disk contact during operation ("contact
recording") without excessive wear. Most heads available commercially are
designed to operate at a microscopic distance or "fly" above the surface of the
disk on a cushion of air and come into true contact with the disk only when the
drive is turned off or "powered down." Historically, increases in areal density
(the number of bits of data stored in a unit of area, usually quoted in square
inches, on the surface of the recording disk) have come primarily from
reductions in flying height. Contact recording has not been possible because of
the excessive wear and crash problems inherent in operating conventional head
designs in continuous contact with the disk media. The Company believes that
Censtor technology solves these problems.

        The Company's present business model calls for the Company to license
contact, pseudo-contact and suspension recording technologies to disk drive
manufacturers. Currently, Censtor has sold licenses to nine disk drive and disk
drive component manufacturers (IBM, Fujitsu, Hitachi, Maxtor, NEC, Western
Digital, Denka, Read-Rite and TDK) who bought the licenses based upon their
expectations that the Company's technologies may be used in the future or
because they recognized they were utilizing Censtor's technology. In July 1998
Censtor filed a complaint for patent infringement against JTS Corporation
("JTS") seeking to enforce the Company's patent rights. JTS has generally
denied the allegations. The Company believes Western Digital has breached its
license agreement with the Company. The Company is seeking to enforce its
rights through arbitration with Western Digital.

        BUSINESS STRATEGY

        Censtor's strategy is to perfect its patent protection and rights to
proprietary disk drive technology developed by it over the last 17 years, and to
exploit that technology through licensing or other strategic transactions with
disk drive manufacturers and other related companies. The Company has been
unsuccessful in its efforts to sell licenses to the Company's technology to some
prospective licensees who, in management's opinion, are infringing the Company's
patents. Accordingly, at the beginning of fiscal 1998, management and the Board
of Directors concluded that the Company would benefit from leadership with
extensive experience in patent enforcement. Management has sought, and found,
such capability in, and has entered into a relationship with I. P. Managers,
Inc. ("IPM"). Management believes the Company's arrangement with IPM will
provide the best available leadership while minimizing the short term cash
obligations of the Company while it seeks to complete new license agreements and
collect royalties from existing licensees.


                                      -2-
<PAGE>   3

        MAINTENANCE AND ENHANCEMENT OF PATENT PORTFOLIO

        To protect and enhance its large investment in head and media
development, the Company maintains an aggressive patent prosecution strategy and
has obtained several patents covering low mass recording heads. The Company's
patent portfolio currently includes 20 issued United States patents, 15 pending
United States patent applications, 12 foreign patents and 10 foreign patent
applications.

        COMPETITION AND TECHNOLOGICAL CHANGE

        The disk drive component industry is intensely competitive. Participants
in the industry include both independent component suppliers as well as large
disk drive and computer manufacturers that supply their internal component
requirements. These companies have greater financial, marketing and
technological resources than Censtor. The Company also competes with companies
offering products based on alternative data storage and retrieval technologies.
Technological advances in magnetic, optical, semiconductor or other
technologies, or the development of new technologies, could result in the
introduction of competitive products with superior performance to and
substantially lower prices than the Company's technology can provide, which
could render the Company's technology noncompetitive or obsolete, thereby
adversely affecting the Company's results of operations.

        The market for the Company's technology is intensely competitive and
characterized by rapidly changing advances in head and media technologies. These
advances result in frequent product introductions, short product life cycles and
increased product capabilities that may result in significant performance
improvements and price reductions. Specifically, the Company is subject to
competition from manufacturers of thin film inductive and MR heads, as well as
thin film media based on use of conventional flying head and longitudinal
recording technologies. Head and media product performance has been improving
steadily due to a combination of increased transducer efficiency, improved media
performance, smaller slider size, lower flying heights, and pseudo-contact heads
and it is expected to continue to improve. In addition to enabling lower flying
heights, the cost of advanced inductive flying heads is being decreased by the
reduction in the size of the slider, which permits fabrication of more sliders
per wafer. There can be no assurance that the Company's potential performance
will be realized in practice or can be maintained over the improvements to
conventional inductive heads.

        LICENSES WITH DISK DRIVE AND COMPONENT MANUFACTURERS

        The Company has entered into license agreements with six of the
approximately twenty-five disk drive manufacturers in the world: IBM, Fujitsu,
Hitachi, Maxtor, NEC and Western Digital, and with three component manufacturers
- Denka, Read-Rite and TDK. The Company has executed license agreements with
initial license fees of $27.0 million and has received $7.5 million of
non-refundable advance royalty payments from these licensees. Some of these
agreements provide that no future licenses granted by the Company will be more
favorable than the existing licenses and that the licensee may grant restricted
sub-licenses to component suppliers. Others permit the licensees to acquire the
right to appoint subcontractors in exchange for the payment of additional
license fees and royalties. The specific terms of the license agreements vary
depending on when the licenses were entered into, whether or not the Company has
rights to future royalty payments from certain of the licensees, whether the
license extends to not only the Company's patents but also its trade secret 
information, and whether the licensee is expected to become a component 
supplier.

        ENVIRONMENTAL REGULATIONS

        Although the Company no longer engages in any manufacturing or research
and development activities, in the past the Company has been subject to a
variety of governmental regulations relating to the use, storage, discharge,
handling, emission, generation, manufacture and disposal of toxic or other
hazardous substances used to manufacture and test the Company's micro
Flexhead(R) component. The Company 


                                      -3-
<PAGE>   4

believes that it has been in compliance in all material respects and at all
material times with such regulations and that it had obtained all necessary
environmental permits to conduct its business. Any failure in the past by the
Company to control the use, disposal or storage of, or adequately restrict the
discharge of, hazardous or toxic substances could subject the Company to
significant liabilities.

        HUMAN RESOURCES

        As of June 30, 1998, the Company had two part-time employees. One is
responsible for the finance and administrative duties for the Company while the
other is responsible for all other management duties of the Company including
the Company's intellectual property management duties.

        EXECUTIVE OFFICERS OF THE REGISTRANT

        The executive officers and directors of the Company as of June 30, 1998,
are as follows: 

<TABLE>
<CAPTION>
NAME                            AGE    POSITION
<S>                              <C>   <C>
Gary J. Summers                  55    Chief Executive Officer, Chairman of the Board and
                                       Director

Sabine Austin                    39    President, Chief Financial Officer, Corporate Secretary
                                       and Director

Michael R. Morgan                56    Director

</TABLE>
        GARY J. SUMMERS has been a member of the Company's Board of Directors
since September 1997. In June 1998 he was also appointed Chairman of the Board
and Chief Executive Officer of Censtor. Since November 1997, he has been
President of IPM. From 1985 through November 1997, he was President, Chief
Executive Officer and Founder of Teklicon, Inc., a high technology consulting
firm and wholly owned subsidiary of Forensic Technologies International
Corporation, that provides consulting and expert witness services to the legal
profession. During the last 12 years, Mr. Summers has focused on high technology
intellectual property litigation, ADR and licensing services in the areas of
complex technologies such as semiconductors, computer systems, software,
mechanical and chemical systems and telecommunications. He is a member of IEEE,
ETA Kappa Nu, Tau Beta Pi and the American Board of Certified Forensic
Examiners. He received his BSEE and MSEE degrees from the University of Houston
in 1969 and 1970, respectively.

        SABINE AUSTIN has been President, Chief Financial Officer and Corporate
Secretary of Censtor Corp. and a member of the Board of Directors since
September 1997. From September 1997 to June 1998, she was also Chief Executive
Officer. She joined the Company in March 1987 as a cost accountant and financial
analyst and became Manager of Finance and Administration in August 1989 and
Finance Director in January 1996. Ms. Austin received her BA degree in
Math-Econometrics from the University of California at Santa Barbara in 1981 and
an MBA from Santa Clara University in 1986.

        MICHAEL R. MORGAN has been a member of the Company's Board of Directors
since May 1998. He has been a practitioner of law in California since 1980. From
1980 until 1983 he was corporate counsel, tax counsel and financial consultant
to an individual and his controlled entities. Since then he has been in private
practice in partnership with the law firm of Morgan and Posilippo. Prior to
1980, he was a tax professional with the Internal Revenue Service from 1968 to
1973, with Arthur Andersen and Company from June 1973 until October 1977, and
with Touche Ross and Company from October 1977 until June 1980. Mr. Morgan
graduated from the University of San Francisco, School of Law, in 1972 and
earned his Bachelor of Arts in Accounting from San Francisco State University in
1968. He is also a California Certified Public Accountant.


                                      -4-
<PAGE>   5

ITEM 2. PROPERTIES

        Until August 21, 1997, the Company's corporate offices consisted of
approximately 2,000 square feet of office space located in San Jose, California.
The Company's lease on this facility was to expire on May 2, 1999, however, the
landlord terminated this lease effective December 11, 1997 since the Company
moved to a smaller location in Los Gatos, California.

ITEM 3. LEGAL PROCEEDINGS

        Not Applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Not Applicable.

                                      -5-
<PAGE>   6
                                     PART II

ITEM 5.   MARKET FOR  REGISTRANT'S  COMMON  EQUITY AND RELATED  SHAREHOLDER
          MATTERS

        As of June 30, 1998, the Company had outstanding 8,523,751 shares of
common stock held by 147 shareholders, 6,617,299 shares of Series A Preferred
Stock held by 15 shareholders and 8,370,508 shares of Series B Convertible
Preferred Stock held by 552 shareholders. There is no established public trading
market for any class of the Company's equity securities.

        The Company has not paid any dividends on any of its capital stock and
does not anticipate that any cash dividends will be declared in the foreseeable
future. The holders of Preferred Stock are entitled to certain preferences with
respect to dividends and other preferences.


                                      -6-
<PAGE>   7




ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>

                                                                    Fiscal Year Ended June 30,
                                   ---------------------------------------------------------------------------------------------
                                        1994                1995                1996                1997                1998
                                   -------------       -------------       -------------       -------------       -------------
<S>                                <C>                 <C>                 <C>                 <C>                 <C>          

STATEMENT OF OPERATIONS DATA:
    License revenues               $   7,845,799       $   3,515,472       $   3,202,704       $   4,088,332       $   3,083,335

Expenses:
    Research and development          11,723,752          11,448,501           8,261,638                  --                  --
    Selling, general &                 2,372,255           2,846,235           2,393,233           1,799,046           1,226,501
    administrative
                                   -------------       -------------       -------------       -------------       -------------
       Total expenses                 14,096,007          14,294,736          10,654,871           1,799,046           1,226,501
                                   -------------       -------------       -------------       -------------       -------------
Operating income (loss)               (6,250,208)        (10,779,264)         (7,452,167)          2,289,286           1,856,834

Gain on transfer of research                  --                  --                  --           1,596,706                  --
   & development operations

Interest and other income             
  (expense)                           (1,486,025)           (959,146)         (1,032,112)           (114,359)             24,260

Minority interest in loss of             
  subsidiary                                  --              81,650             194,642                  --                  --
                                   -------------       -------------       -------------       -------------       -------------
Income (loss) before income           (7,736,233)        (11,656,760)         (8,289,637)          3,771,633           1,881,094
    tax expense

Income tax expense                            --             290,350             319,450              68,333             154,460
                                   -------------       -------------       -------------       -------------       -------------
Net income (loss)                  $  (7,736,233)      $ (11,947,110)      $  (8,609,087)      $   3,703,300       $   1,726,634
                                   =============       =============       =============       =============       =============
Basic net income (loss) per        $       (0.84)      $       (1.29)      $       (0.93)      $        0.43       $        0.20
share

Diluted net income (loss) per      $       (0.84)      $       (1.29)      $       (0.93)      $        0.16       $        0.07
share

Shares used in basic                       9,211               9,255               9,301               8,546               8,525
  calculation (in thousands)

Shares used in diluted                     9,211               9,255               9,301              23,534              23,513
  calculation (in thousands)

BALANCE SHEET DATA:
  Cash and cash equivalents        $   8,613,200       $   1,368,891       $     199,988       $     799,928       $     915,690

  Working capital (deficiency)         6,215,308          (2,878,918)         (8,406,743)           (944,315)           (540,500)
  Total assets                        12,627,804           4,519,001           1,481,767             854,981             934,956
  Long term obligations,              14,309,130          14,304,589          14,488,311                  --                  --
    excluding current maturities
  Accumulated deficit                (87,350,253)        (99,297,363)       (107,906,450)       (104,203,150)       (102,476,516)
  Net capital deficiency              (4,365,839)        (14,515,928)        (22,649,811)        (18,946,511)        (17,219,877)
</TABLE>

See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Consolidated Financial Statements".

                                      -7-
<PAGE>   8


ITEM 7.   MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
          RESULTS OF OPERATIONS

          Unless otherwise indicated, references to years in this section refer
          to fiscal years ending June 30.

       The following discussion and analysis contains forward-looking statements
regarding future events or the future financial performance of Censtor that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in the documents the
Company files from time to time with the Securities and Exchange Commission.

RESULTS OF OPERATIONS

       OVERVIEW

       The Company was formed in 1981 to develop perpendicular recording
technology, and to manufacture head and disk components for disk drives. The
Company subsequently shifted the focus of its development efforts from
perpendicular to longitudinal contact recording technology. To date, the
Company's principal source of revenue has been license fees from disk drive
manufacturers. While the Company's license agreements typically provide for
on-going royalty payments by licensees based upon sales of products
incorporating the Company's technology, to date none of the Company's licensees
has commercialized products using the Company's technology and the Company has
received no recurring royalty revenue. Until fiscal 1997, the Company had not
been profitable in any fiscal period since inception and, as of June 30, 1998,
had an accumulated deficit of $102.5 million. There can be no assurance that the
Company will achieve or sustain significant revenues or profitability in the
future.

       Censtor's operating plans for fiscal 1999 focus on the perfection of the
Company's patent protection and other proprietary rights and the possible
exploitation of such rights through licenses or other strategic transactions
with disk drive manufacturers and other related companies. The Company expects
to finance these operations through sales of additional licenses. There can be
no assurance that the Company will be able to achieve such sales or sustain its
operations beyond 1999 without the sale of such additional licenses.

       LIQUIDITY AND CAPITAL RESOURCES

       Since its inception, the Company has financed its operations primarily
through private placements of its equity and debt securities and, to a lesser
extent, through licensing and research and development agreements. In fiscal
year 1996, the Company generated net cash of $6.6 million resulting primarily
from $7.5 million in notes payable and short term borrowing offset by $1.4
million in capital lease payments. In 1997, the Company used $5.5 million in
financing activities due primarily to the repayment of notes payable and short
term borrowing. There were no cash flows from financing activities in fiscal
1998.

       During fiscal 1996, the Company used net cash in its operations of $8.1
million. In 1997, the Company generated cash from operations of $4.9 million. In
1998, the Company generated cash in its operations of $116,000 primarily from
the sale of the TDK license offset by changes in the operating accounts. In
1996, the Company received payments of license fees and non-refundable prepaid
royalties from several licensees, which caused net cash used in operations to be
less than the Company's net loss. In addition, particularly in 1996, the Company
delayed payments on accounts payable to conserve cash prior to completion of
then-anticipated new financing.

       The Company generated net cash from investing activities of $358,000 in
1996 consisting of $192,000 used for additions to property and equipment and
$550,000 provided by proceeds from the sale and 




                                      -8-
<PAGE>   9

leaseback, and sale of fixed assets. In 1997, the Company generated $1.1 million
from investing activities primarily from the sale of certain fixed assets to
Read-Rite in the Read-Rite Transaction. There were no cash flows from investing
activities in fiscal 1998.

       The Company's ability to fund its cash requirements and assert its
intellectual property rights in the future depends largely upon its success in
seeking new licensees. The Company believes the cash received from the license
agreement with TDK will enable it to fund its planned operations through fiscal
1999. The Company's cash flow needs in fiscal year 1999 are primarily for
operating expenses, which may include significant litigation expense.

       RESULTS OF OPERATIONS

       Revenues

       The Company's major revenue source has been fees from license agreements
with disk drive manufacturers. License fees are generally recognized over the
estimated period in which the Company expects to provide support in connection
with the license. All deferred revenue pertaining to licenses sold to disk drive
manufacturers was recognized as revenue in fiscal 1996 and 1997 since the
Company can no longer provide technical support to its licensees as a result of
the Read-Rite Transaction. The license fee from Read-Rite in connection with the
Read-Rite Transaction will be recognized over a period of six years.

       The Company's revenues were $3.2 million, $4.1 million and $3.1 million
in 1996, 1997 and 1998 respectively. Revenues in fiscal 1996 consisted primarily
of the amortization of the Hitachi license which was entered into in December
1994, as well as the NEC license sold in August 1995. Revenues in 1997 were the
result of the amortization of the Read-Rite and Western Digital license fees.
These licenses were entered into at the beginning of the fiscal year. Revenues
in fiscal 1998 consisted of the entire TDK license fee and the amortization of
the Read-Rite and Western Digital license fees.

       Research and Development

       Research and development expenses were $8.3 million in 1996 and were
eliminated in 1997 and 1998. This is attributed to Read-Rite's hiring of most of
Censtor's employees on February 5, 1996 and the subsequent acquisition of the
Company's research and development operations. In the future the Company expects
no R&D expenses.

       Selling, General and Administrative Expenses

       Selling, general and administrative expenses decreased from $2.4 million
in 1996 to $1.8 million in 1997 to $1.2 million in 1998. The decreases in 1997
and 1998 were due to a reduction in headcount and operations.

       Interest and Other Income (Expense)

       Interest and other expense, net, consists primarily of interest on the
Company's outstanding indebtedness and capital leases. Interest and other
expense, net, was $1.0 million in 1996 and decreased to $100,000 in 1997. In
fiscal 1998, the Company had interest income of $24,000. The Company repaid or
was forgiven all of its interest bearing debt at the beginning of the 1997
fiscal year.

       Gain on Transfer of Research and Development Operation

       The Company recognized a gain of $1.6 million in fiscal 1997 relating to
the Read-Rite Transaction. The gain consists of $899,000 related to the
forgiveness of certain promissory notes and $698,000 related to the gain on sale
of fixed assets and the transfer of the Company's workforce.


                                      -9-
<PAGE>   10

       Income Taxes

       As of June 30, 1998, the Company had federal and state net operating
losses of approximately $83.0 million and $31.0 million, respectively, expiring
in various years beginning in 1999 through 2012. The Company also has federal
and state credit carryforwards of approximately $3.0 million and $1.5 million
respectively, expiring in various years beginning in 1999 through 2010.

       Tax law provides that the use of net operating loss and credit
carryforwards are limited if there is a substantial change in the ownership of
the Company. Due to prior years' equity transactions, such a change has
occurred. Approximately $62.0 million of federal net operating loss and
substantially all credit carryforwards are subject to an annual limitation. The
annual limitation is approximately $1.2 million per year. The balance of $21.0
million of federal net operating loss carryforwards can be used without
limitation. Similar limitations apply to state carryforwards.

       Income tax expenses for fiscal 1996 and 1998 consist of foreign
withholding taxes in connection with license agreements. Income tax expense in
1997 represents a provision for alternative minimum taxes.

       Impact of Year 2000

       As is the case with most other companies using computers in their
operations, the Company is currently working to resolve the potential impact of
the year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The Company's computer programs were written
using two digits rather than four to define the applicable year. As a result,
those computer programs have time-sensitive software that recognize a date using
"00" as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions.

       The Company has completed an assessment and will have to modify its
software so that its computer systems will function properly with respect to
dates in the year 2000 and thereafter. Management does not currently believe
that the affect of its Year 2000 compliance efforts will have a material effect
on the Company's financial position, results of operations or cash flows.


ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

       The information required by this item is incorporated by reference to the
Consolidated Financial Statements set forth on pages F-1 through F-14.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE.

               Not Applicable.



                                      -10-
<PAGE>   11

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

       Information regarding Directors and Executive Officers is included in
Part I hereof under the caption "Executive Officers of the Registrant" and is
incorporated by reference into this Item 10.

ITEM 11.  EXECUTIVE COMPENSATION

        Summary Compensation Table. The following table sets forth the
compensation paid by the Company for the year ended June 30, 1998 to each of
the Company's named executive officers (the "named officer") during that year:

<TABLE>
<CAPTION>
                                                                              LONG-TERM
                                                                            COMPENSATION
                                                   ANNUAL COMPENSATION     --------------
                                                  --------------------        SECURITIES       
                                                                BONUS         UNDERLYING        ALL OTHER
    NAME AND PRINCIPAL POSITION           YEAR     SALARY        (1)         OPTION(#)(2)    COMPENSATION(3)
   -----------------------------          ----     -------      ------     --------------    --------------- 
<S>                                       <C>      <C>         <C>             <C>               <C>
Russell M. Krapf(4)                       1998      59,009      45,000                0             487
  Former Chief Executive                  1997     207,684     129,225          510,206           2,598
  Officer and Former President            1996     184,381       9,654           75,000             488

Sabine Austin(5)                          1998      58,618      22,337                0               71
  President, Chief Financial              1997      64,324      20,000          146,312              392
  Officer                                 1996      81,154       5,000           12,000              396

Gary Summers(6)                           1998           0           0                0                0
  Chief Executive Officer                 1997           0           0                0                0
                                          1996           0           0                0                0
</TABLE>


(1)    Of the $20,000 bonus paid to Ms. Austin in 1997, $12,768 was paid in
       cash while the remaining $7,232 was deposited in the officer's 401(k)
       account. Similarly, in 1996, of the $5,000 bonus, $3,094 was paid in
       cash and the remaining $1,906 was deposited in the 401(k) account. The
       bonus in 1998 was the result of the compensation agreement she entered
       into with the Company in July 1997.

(2)    The Company no longer has an Incentive Stock Option plan and all 
       outstanding options have been canceled. There are no other long-term
       incentive compensation plans which require disclosure.

(3)    Reflects premiums paid by the Company on behalf of the named officer for
       term life insurance with benefits payable to beneficiaries designated by
       the officer. As of September 1997, all employee benefits including
       insurance, were canceled.

(4)    Mr. Krapf was appointed President and Chief Executive Officer effective
       April 22, 1996 and resigned these positions effective September 3, 1997.

(5)    Sabine Austin was appointed President and Chief Financial Officer 
       effective September 3, 1997. Sabine Austin was also Chief Executive
       Officer from September 3, 1997 through June 15, 1998. 

(6)    Gary Summers was appointed Chief Executive Officer and Chairman of the 
       Board of Censtor Corp. on June 15, 1998. He is also the President of
       IPM. 

Option Grants in Last Fiscal Year

     There were no option grants in the last fiscal year and the Incentive Stock
Option Plan has been canceled.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option 
Values

     There were no option exercises in the last fiscal year, and all outstanding
options have either expired or been canceled.

Report of the Board of Directors on Executive Compensation

     Compensation for the Company's executive officers was established by the
Board of Directors to consist of salary and bonus to insure a close link between
compensation and the achievement of corporate goals and objectives. The Board
had previously adopted an employee stock option plan to retain qualified
executives by providing long-term incentives. On June 25, 1997 the Board voted
to discontinue this stock option plan and all outstanding options were canceled
prior to calendar year end.

     During 1993, the Internal Revenue Code of 1986 was amended to include a
provision that denies a deduction to publicly held corporations for compensation
paid to "covered employees" (defined as the chief executive officer and the next
four most highly compensated officers as of the end of the taxable year) to the
extent that compensation paid to any "covered employee" exceeds $1 million in
any taxable year of the corporation beginning after 1993. Certain
"performance-based" compensation qualifies for an exemption from the limits on
deductions. It is the Company's policy to qualify compensation paid to its top
executives for deductibility in order to maximize the Company's income tax
deductions, to the extent that so qualifying the compensation is not
inconsistent with the Company's fundamental compensation policies. Based on the
Internal Revenue Service's proposed regulations and compensation paid to the
Company's "covered employees" for the 1997 taxable year, all compensation paid
by the Company in 1997 to such covered employees was deductible to the Company.

     With respect to corporate performance criteria, management presents to the
Board a set of corporate goals for a subsequent period, generally 12 months,
with specific goals for each of four quarters within this period. These goals
establish benchmarks for assessing overall corporate performance. Progress
toward the achievement of corporate goals is reviewed with the Board
periodically together with a description of any change in circumstances that
management believes may warrant an update to or revisions to these goals. The
major goals for fiscal 1998 were to 1) seek new licensees and 2) recover any
royalties from existing licensees which would be due the Company under the terms
of the respective license agreements.

     The CEO and Chairman of the Board does not receive any compensation from
the Company for serving in this capacity at this time. The President receives an
annual salary and has entered into a compensation agreement with the Company
whereby she will receive a bonus equal to 1.5% of all net licensing revenue
received by the Company as long as she serves as a director.

     During 1998 there were no salary increases.

     In summary, the Board believes that it has established a program for
compensation of the Company's executives which is fair and which aligns the
financial incentives for executives with the interests of the Company's
shareholders.

     During 1998, no executive officer of the Company served on the board of
directors or compensation committee of another company that had an executive
officer serve on the Company's Board of Directors.

Performance Chart

     A Performance Chart is not included because there is no established public
market for the Company's stock.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file reports of ownership on Form 3 and changes in
ownership on Form 4 or 5 with the Securities and Exchange Commission and the
National Association of Securities Dealers. Such officers, directors and ten
percent shareholders are also required by Securities and Exchange Commission
rules to furnish the Company with copies of all Section 16(a) forms that they
file.

     Based solely on its review of copies of such reports received or written
representations from certain reporting persons, the Company believes that,
during the fiscal year ended June 30, 1998, there has been no failure by any of
its officers, directors or ten percent shareholders to file on a timely basis
any reports required by Section 16(a).


                                      -11-
<PAGE>   12

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

       The following table sets forth certain information regarding the
beneficial ownership of the Company's outstanding shares of Common Stock and
Preferred Stock (on an as converted basis) as of September 15, 1998 by (i) each
person known to the Company beneficially to own 5% or more of the outstanding
shares of its Common Stock or Preferred Stock, (ii) each of the Company's
directors, (iii) each of the Company's executive officers named in the Summary
Compensation Table above, and (iv) all directors and executive officers as a
group. Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares of
Common Stock and Preferred Stock shown as beneficially owned by them, subject to
community property laws where applicable.

<TABLE>
<CAPTION>
                                                                                                
                                                                                                       TOTALS (2)
                                      PREFERRED STOCK (1)               COMMON STOCK            --------------------------
                                   ---------------------------   ----------------------------    NUMBER OF       PERCENT
                                     NUMBER OF      PERCENT        NUMBER OF        PERCENT       COMMON        OF COMMON
                                      SHARES        OF CLASS         SHARES        OF CLASS     EQUIVALENTS    EQUIVALENTS
                                   BENEFICIALLY   BENEFICIALLY    BENEFICIALLY   BENEFICIALLY   BENEFICIALLY   BENEFICIALLY
          NAME OF OWNER               OWNED          OWNED            OWNED          OWNED         OWNED          OWNED
          -------------            ------------   ------------    ------------   ------------   -----------    -----------
<S>                                 <C>            <C>               <C>            <C>            <C>           <C>
Brentwood Associates(3)..........    1,298,244        8.66%         3,438,593         40.34%      4,736,837       20.15%
   11150 Santa Monica Boulevard,
   Suite 1200
   Los Angeles, CA 90025

Aeneas Venture Corporation(4).....   2,938,225       19.60                  0             0       2,938,225       12.50
   600 Atlantic Avenue,
   26th Floor
   Boston, MA 02210-2203

Wolfensohn Associates II L.P.(5)..     413,172        2.76          1,066,211         12.51       1,479,383        6.29
   590 Madison Avenue, 32nd Floor
   New York, NY 10022

J.P. Morgan Investment                 
  Corporation(6)..................    363,796        2.43          1,060,244         12.44        1,424,040        6.06
   60 Wall Street, 14th Floor
   New York, NY 10260-0060

New Enterprise Associates(7)......   1,424,590      9.50                   0             0        1,424,590        6.06
   1119 St. Paul Street
   Baltimore, MD 21202

William R. Timken.................           0         0             798,830          9.37          798,830        3.40
   Hambrecht & Quist
   1 Bush Street
   San Francisco, CA  94104

Fujitsu Limited...................           0         0             784,682          9.21          784,682        3.34
   1015 Kamikodanaka                                                    
   Nakahara-ku, Kawasaki-shi
   Kanagawa-ken 211
   Japan

Sabine Austin(8)..................           0         0                   0             0                0           0
Russell M. Krapf..................           0         0                   0             0                0           0
Gary J. Summers...................           0         0                   0             0                0           0

Michael R. Morgan.................           0         0                   0             0                0           0
All directors and executive                  0         0                   0             0                0           0
officers as a group (4 persons)...
</TABLE>


(1)  Includes Series A Convertible Preferred and Series B Convertible Preferred.
     Preferred Stock is reflected on an as-converted to Common Stock basis. As
     of June 30, 1998, each share of Series A and Series B Preferred converts
     into one share of Common Stock.

(2)  Reflects Preferred Stock (on an as-converted to Common Stock basis) and
     Common Stock combined.



                                      -12-
<PAGE>   13

(3)  Includes: 1,257,196; 2,366,978; 875,764; and 236,899 shares held
     respectively by Brentwood Associates II, Brentwood Associates III,
     Brentwood Associates IV and Evergreen II, L.P., of which 229,289; 429,253;
     160,002; and 43,343 shares, respectively, are shares of the Company's
     Series A Preferred, and 108,494; 222,972; 82,519; and 22,372 shares,
     respectively, are shares of the Company's Series B Preferred. Mr. Hagopian,
     a former Director of the Company is a General Partner of Brentwood
     Associates. Mr. Hagopian disclaims beneficial ownership of the shares owned
     by Brentwood Associates.

(4)  Includes 2,678,141 shares of the Company's Series A Preferred and 260,084
     shares of the Company's Series B Preferred.

(5)  Includes 273,116 shares of the Company's Series A Preferred and 140,056
     shares of the Company's Series B Preferred. Richard C.E. Morgan, a former
     Director of the Company, is a General Partner of Wolfensohn Partners L.P.
     Mr. Morgan disclaims beneficial ownership of the shares held by Wolfensohn
     Partners L.P.

(6)  Includes 223,796 shares of the Company's Series A Preferred and 140,000 
     shares of the Company's Series B Preferred.

(7)  Includes 1,274,853 and 149,737 shares held respectively by New Enterprise
     Associates V ("NEA") and Spectra Enterprise Associates ("Spectra"), of
     which 1,071,256 and 131,788 shares, respectively, are shares of the
     Company's Series A Preferred and 203,597 and 17,949 shares, respectively,
     are shares of the Company's Series B Preferred. NEA and Spectra are
     independent partnerships; however, the General Partners of Spectra are also
     General Partners of NEA. James A. Cole, a former Director of the Company,
     is a Partner of NEA and the Managing General Partner of Spectra. Mr. Cole
     disclaims beneficial ownership of the shares owned by NEA and Spectra.

(8)  Ms. Austin's stock options were canceled in lieu of the incentive
     compensation agreement she entered into with the Company effective July 29,
     1997.

                                      -13-
<PAGE>   14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Company has entered into the following transactions with its officers
and directors since July 1, 1997:

     In September 1990, Richard C. E. Morgan, a past director of the Company,
exercised stock options as to 6,848 shares of the Company's Common Stock and, in
lieu of payment to the Company for such exercise, Mr. Morgan delivered to the
Company a promissory note in the principal amount of $2,000. The note, which was
due July 11, 1997, was called and the stock was canceled by action of the Board
of Directors in July 1997.

     In July 1993, Karen Cindrich, a former officer of the Company, exercised
stock options as to 15,395 shares of the Company's Common Stock and in lieu of
payment to the Company for such exercise, Ms. Cindrich delivered to the Company
a promissory note in the principal amount of $8,810. The note, which was due
July 22, 1997, was called and the stock was canceled by action of the Board of
Directors in July 1997.

     The Company's Bylaws provide that the Company is required to indemnify its
officers and directors to the fullest extent permitted by California law,
including those circumstances in which indemnification would otherwise be
discretionary, and that the Company is required to advance expenses to its
officers and directors as incurred. Further, the Company has entered into
indemnification agreements with its officers and directors. The Company believes
that its charter and bylaw provisions and indemnification agreements are
necessary to attract and retain qualified persons as directors and officers.

     On July 7, 1997, Russell M. Krapf notified the Company that he intended to
resign his position as President and CEO effective September 3, 1997. On July
29, 1997, the Company entered into a consulting agreement with Mr. Krapf for a
period up to one year. Mr. Krapf was paid $45,000 for these consulting services.

     On July 29, 1997, the Company created an incentive compensation program for
Ms. Sabine Austin to serve as a director of the Company. This program will pay
Ms. Austin a bonus equal to 1.5% of all net licensing revenue received by the
Company as long as she serves as a director.

     On July 31, 1997, the Company entered into an agreement with IPM, whereby
IPM acts as Censtor's agent to enforce its current licenses and to negotiate
licenses with prospective licensees. Under this agreement, IPM will be paid
between 15-45% of the net proceeds of such activities depending upon the source
of revenue. In fiscal year 1998, IPM assisted with the sale of a license to
TDK, pursuant to which IPM was paid approximately $200,000 (which includes
payment for other services). Mr. Gary Summers is the President and a
stockholder of IPM.

     The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and its
officers, directors, principal shareholders and affiliates will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested outside directors on the Board of Directors, and will be on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties.



                                      -14-
<PAGE>   15

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a)  Documents Filed with Report

          1)   Financial Statements.

          The following Consolidated Financial Statements of Censtor Corp. and
          subsidiaries, and the Report of Independent Auditors are included at
          pages F-1 through F-14 of this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                            DESCRIPTION                                PAGE NO.
                 ------------------------------------------------------------------- --------------
<S>                                                                                   <C>
                 Report of Ernst & Young LLP, Independent Auditors.................       F-2

                 Consolidated Balance Sheets as of June 30, 1997 and 1998..........       F-3

                 Consolidated Statements of Operations for each of the Three Years        F-4
                 in the Period Ended June 30, 1998.................................

                 Consolidated Statements of Net Capital Deficiency for each of the        F-5
                 Three Years in the Period Ended June 30, 1998.....................

                 Consolidated Statements of Cash Flows for each of the Three Years        F-6
                 in the Period Ended June 30, 1998.................................

                 Notes to Consolidated Financial Statements........................       F-7
</TABLE>


          2)   Financial Statement Schedules.

          No schedules have been filed as part of this report because they are
          not applicable or are not required or the information required to be
          set forth therein is included in the consolidated financial statements
          or notes thereto.

          3)   Exhibits

<TABLE>
<CAPTION>
               Exhibit
               Number        Description
               -------       -----------
<S>                          <C>
               3.1 (5)       Restated Articles of Incorporation of Registrant.

               3.2 (1)       Amended and Restated Bylaws of Registrant.

               10.1 (1)(4)   1990 Stock Plan and Form of Option Agreement.

               10.2 (1)      Form of Indemnification Agreement entered into
                             between the Company and each of its directors and
                             officers.

               10.3 (1)      Lease Agreement, dated November 28, 1983,
                             between the Company and The Sobrato Group, together
                             with amendments thereto.
</TABLE>



                                      -15-
<PAGE>   16

<TABLE>
<CAPTION>
               Exhibit
               Number        Description
               -------       -----------
<S>                          <C>
               10.4 (1) (2)  License Agreement, dated September 23, 1991,
                             between the Company and Maxtor Corporation, as
                             amended.

               10.5 (1) (2)  License Agreement, dated February 28, 1991, between the
                             Company and Fujitsu Limited, as amended.

               10.6 (1) (2)  Manufacturing License Agreement, dated August 26, 1988,
                             between the Company and Denki Kagaku Kogyo Kabushiki
                             Kaisha, as amended.

               10.7 (1) (2)  License Agreement, dated June 1, 1993, between the
                             Company and International Business Machines Corporation.

               10.8 (1)      Denka Promissory Note.

               10.9 (3)      License Agreement, dated December 19, 1994,
                             between Hitachi, Ltd. and the Company.
               10.10 (5)     License Agreement, dated June 19, 1995,
                             between Contact Recording Technology, Inc. and the
                             Company.

               10.11 (2)     License Agreement, dated August 7, 1995,
                             between NEC Corporation and the Company.

               10.12(6)      Agreement for Purchase and Sale of Assets by and between
                             Read-Rite Corporation and the Company.

               10.13(2)      License Agreement, dated August 12, 1996, between
                             Western Digital and the Company.

               10.14(7)      Assignment of Lease and Consent to Assignment, dated
                             July 2, 1996, between The Sobrato Group, Censtor Corp.
                             and Read-Rite Corp.

               10.15(7)      Fifth Amendment to Manufacturing License Agreement,
                             dated February 22, 1996, with Denki Kagaku Kogyo Kabushiki
                             Kaisha.

               10.16(7)      Amendment to Terms of Debentures, dated February 22,
                             1996, with Denki Kagaku Kogyo Kabushiki Kaisha.

               10.17(7)      License Agreement, dated July 18, 1996, between
                             Read-Rite Corporation and the Company.

               10.18(8)      Agreement between I.P. Managers, Inc. and the Company
                             dated July 31, 1997.

               10.19(8)      Incentive Compensation Agreement between the Company and
                             Sabine Austin, dated July 29, 1997.
</TABLE>



                                      -16-
<PAGE>   17


<TABLE>
<CAPTION>
               Exhibit
               Number        Description
               -------       -----------
<S>                          <C>
               10.20(9)      License Agreement, dated September 25, 1997,
                             between TDK Corporation and the Company.

               24            Power of Attorney (see signature page)

</TABLE>
-------------------------

          (1)  Incorporated by reference to exhibits filed with Registrant's
               Registration Statement on Form 10 which became effective December
               25, 1994.
 
          (2)  Confidential Treatment requested for portions of Exhibit.

          (3)  Incorporated by reference to exhibits filed with the Registrant's
               Quarterly Report on Form 10-Q for the quarter ended December 31,
               1994.

          (4)  Document indicated is a compensatory plan.

          (5)  Incorporated by reference to exhibits filed with Registrant's
               Annual Report on Form 10-K for the year ended June 30, 1995.

          (6)  Incorporated by reference to exhibit filed with Registrant's
               Proxy Statement relating to the Registrant's 1996 Annual Meeting
               of Shareholders.

          (7)  Incorporated by reference to exhibits filed with Registrant's
               Annual Report on Form 10-K for the year ended June 30, 1996.

          (8)  Incorporated by reference to exhibits filed with Registrant's
               Annual Report on Form 10-K for the year ended June 30, 1997.

          (9)  Incorporated by reference to exhibits filed with Registrant's
               Quarterly Report on Form 10-Q for the quarter ended September 30,
               1997.

    (b)  Reports on Form 8-K
         Not applicable.

    (c)  Exhibits
         See response to Item 14(a)(3) above.

    (d)  Financial Statement Schedules
         See response to Item 14(a)(2) above.



                                      -17-
<PAGE>   18



                        CONSOLIDATED FINANCIAL STATEMENTS
                                  CENSTOR CORP.
                FOR THE YEARS ENDED JUNE 30, 1996, 1997, AND 1998
                       WITH REPORT OF INDEPENDENT AUDITORS
















                                      
<PAGE>   19

                                  CENSTOR CORP.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<S>                                                                                 <C>
Report of Ernst & Young LLP, Independent Auditors...................................F-2
Consolidated Balance Sheets as of June 30, 1997 and 1998............................F-3
Consolidated Statements of Operations for Each of the
  Three Years in the Period Ended June 30, 1998.....................................F-4
Consolidated Statements of Net Capital Deficiency for Each of the
  Three Years in the Period Ended June 30, 1998.....................................F-5
Consolidated Statements of Cash Flows for Each of the
  Three Years in the Period Ended June 30, 1998.....................................F-6
Notes to Consolidated Financial Statements..........................................F-7
</TABLE>







                                      F-1
<PAGE>   20

                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Censtor Corp.

We have audited the accompanying consolidated balance sheets of Censtor Corp. as
of June 30, 1997 and 1998, and the related consolidated statements of
operations, net capital deficiency, and cash flows for each of the three years
in the period ended June 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Censtor
Corp. at June 30, 1997 and 1998, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended June 30,
1998, in conformity with generally accepted accounting principles.



San Jose, California
August 7, 1998



                                      F-2
<PAGE>   21
<TABLE>
<CAPTION>
                                                                     JUNE 30,
                                                             ------------------------
                                                               1997            1998
                                                             --------        --------
<S>                                                          <C>             <C>     
ASSETS
Current assets:
  Cash and cash equivalents ..............................   $799,928        $915,690
  Receivables and prepaid expenses and
    other current assets .................................     44,537          19,266
                                                             --------        --------
Total current assets .....................................    844,465         934,956

Deposits and other assets ................................     10,516              --


















                                                             --------        --------
Total assets .............................................   $854,981        $934,956
                                                             ========        ========
</TABLE>


<TABLE>
<CAPTION>
                                                                     JUNE 30,
                                                          -------------     -------------
                                                               1997              1998
                                                          -------------     -------------
<S>                                                       <C>               <C>          
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
  Accounts payable ...................................    $      66,372     $      40,553
  Deferred revenue ...................................        1,583,333         1,333,333
  Other current liabilities ..........................          139,075           101,570
                                                          -------------     -------------
Total current liabilities ............................        1,788,780         1,475,456

Long-term obligations:
  Deferred revenue ...................................        5,333,335         4,000,000
  Restructured debt obligation .......................       12,679,377        12,679,377

Net capital deficiency:
  Convertible preferred stock, no par value:
    Authorized shares - 25,000,000
    Issued and outstanding shares - 14,987,807 in 1997
      and 1998 .......................................       32,509,031        32,612,081
    Aggregate liquidation preference of $34,981,413
  Common stock, no par value:
    Authorized shares - 50,000,000
    Issued and outstanding shares - 8,545,994 in 1997
      and 8,523,751 in 1998 ..........................       50,241,660        50,230,850
  Warrants to purchase shares of preferred stock -
    1,098,318 in 1997 and 411,318 in 1998 ............          253,050           150,000
  Capital surplus ....................................        2,263,708         2,263,708
  Accumulated deficit ................................     (104,203,150)     (102,476,516)
                                                          -------------     -------------
                                                            (18,935,701)      (17,219,877)
  Notes receivable from shareholders .................          (10,810)               --
                                                          -------------     -------------
Total net capital deficiency .........................      (18,946,511)      (17,219,877)
                                                          -------------     -------------
Total liabilities and net capital deficiency .........    $     854,981     $     934,956
                                                          =============     =============
</TABLE>



                             See accompanying notes.


                                      F-3
<PAGE>   22

                                  CENSTOR CORP.

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                     YEARS ENDED JUNE 30,
                                                         ----------------------------------------------
                                                             1996             1997             1998
                                                         ------------     ------------     ------------
<S>                                                      <C>              <C>              <C>         
License revenues ....................................    $  3,202,704     $  4,088,332     $  3,083,335

Costs and expenses:
  Research and development ..........................       8,261,638               --               --
  Selling, general, and
    administrative ..................................       2,393,233        1,799,046        1,226,501
                                                         ------------     ------------     ------------
Total expenses ......................................      10,654,871        1,799,046        1,226,501
                                                         ------------     ------------     ------------

Operating income (loss) .............................      (7,452,167)       2,289,286        1,856,834

Gain on transfer of research and
  development operation .............................              --        1,596,706               --
Interest income .....................................           5,481               --           29,600
Interest expense ....................................      (1,183,680)        (275,140)              --
Other income (expense), net .........................         146,087          160,781           (5,340)
Minority interest in loss of
  subsidiary ........................................         194,642               --               --
                                                         ------------     ------------     ------------
Income (loss) before income tax
  expense ...........................................      (8,289,637)       3,771,633        1,881,094

Income tax expense ..................................        (319,450)         (68,333)        (154,460)
                                                         ------------     ------------     ------------
Net income (loss) ...................................    $ (8,609,087)    $  3,703,300     $  1,726,634
                                                         ============     ============     ============

Net income (loss) per share:
  Basic .............................................    $      (0.93)    $       0.43     $       0.20
                                                         ============     ============     ============
  Diluted ...........................................    $      (0.93)    $       0.16     $       0.07
                                                         ============     ============     ============

Shares used in per share calculations (in thousands):
    Basic ...........................................           9,301            8,546            8,525
                                                         ============     ============     ============
    Diluted .........................................           9,301           23,534           23,513
                                                         ============     ============     ============
</TABLE>
                             See accompanying notes.


                                      F-4
<PAGE>   23

                                  CENSTOR CORP.

                CONSOLIDATED STATEMENTS OF NET CAPITAL DEFICIENCY


<TABLE>
<CAPTION>
                                                  CONVERTIBLE                                                    
                                                PREFERRED STOCK                     COMMON STOCK                 
                                          ----------------------------        ---------------------------        
                                             SHARES          AMOUNT            SHARES           AMOUNT           
                                          -----------    -------------        ---------     -------------        
<S>                                        <C>           <C>                  <C>           <C>                  
Balance at June 30, 1995 ..............    14,987,807    $  32,509,031        9,300,469     $  50,507,497        
  Issuance of common stock ............            --               --            2,875             1,096        
  Issuance of warrants in connection                                                                             
    with bank line of credit ..........            --               --               --                --        
  Expiration of warrants in                                                                                      
    connection with capital leases ....            --               --               --                --        
  Capital surplus from investment in                                                                             
    subsidiary ........................            --               --               --                --        
  Net loss ............................            --               --               --                --        
                                           ----------    -------------        ---------     -------------        
Balance at June 30, 1996 ..............    14,987,807       32,509,031        9,303,344        50,508,593        
  Cancelation of notes receivable .....            --               --         (757,350)         (266,933)       
  Net income ..........................            --               --               --                --        
                                           ----------    -------------        ---------     -------------        
Balance at June 30, 1997 ..............    14,987,807       32,509,031        8,545,994        50,241,660        
  Cancelation of notes receivable .....            --               --          (22,243)          (10,810)       
  Expiration of warrants to purchase                                                                             
    Series B preferred stock ..........            --          103,050               --                --        
  Net income ..........................            --               --               --                --        
                                                                                                                 
                                           ----------    -------------        ---------     -------------        
Balance at June 30, 1998 ..............    14,987,807    $  32,612,081        8,523,751     $  50,230,850        
                                           ==========    =============        =========     =============        
</TABLE>

<TABLE>
<CAPTION>
                                            WARRANTS TO PURCHASE           WARRANTS TO PURCHASE                                
                                               PREFERRED STOCK                 COMMON STOCK                                    
                                          -----------------------           ------------------    CAPITAL       ACCUMULATED    
                                            SHARES        AMOUNT            SHARES      AMOUNT    SURPLUS         DEFICIT      
                                          ----------     --------           -------     ------   ----------    -------------   
<S>                                          <C>         <C>                <C>         <C>      <C>           <C>             
Balance at June 30, 1995 ..............      988,318     $253,050           105,107     $   -    $1,789,600    $ (99,297,363)  
  Issuance of common stock ............           --           --                --         -            --               --   
  Issuance of warrants in connection                                                        
    with bank line of credit ..........      110,000           --                --         -            --               --   
  Expiration of warrants in                                                                 
    connection with capital leases ....           --           --           (25,107)        -            --               --   
  Capital surplus from investment in                                                        
    subsidiary ........................           --           --                --         -       474,108               --   
  Net loss ............................           --           --                --         -            --       (8,609,087)  
                                           ---------     --------            ------               ---------     ------------   
Balance at June 30, 1996 ..............    1,098,318      253,050            80,000         -     2,263,708     (107,906,450)  
  Cancelation of notes receivable .....           --           --                --         -            --               --   
  Net income ..........................           --           --                --         -            --        3,703,300   
                                           ---------     --------            ------               ---------     ------------   
Balance at June 30, 1997 ..............    1,098,318      253,050            80,000         -     2,263,708     (104,203,150)  
  Cancelation of notes receivable .....           --           --                --         -            --               --   
  Expiration of warrants to purchase                                                        
    Series B preferred stock ..........     (687,000)     103,050)               --         -            --               --   
  Net income ..........................           --           --                --         -            --        1,726,634   
                                                                                                                               
                                           ---------     --------            ------     ------    ---------     ------------   
Balance at June 30, 1998 ..............      411,318     $150,000            80,000     $   -    $2,263,708    $(102,476,516)  
                                           =========     ========            ======     ======   ==========    =============   
</TABLE>

<TABLE>
<CAPTION>
                                              NOTES                   
                                            RECEIVABLE         TOTAL   
                                               FROM         NET CAPITAL
                                           SHAREHOLDERS     DEFICIENCY
                                          -------------    -------------
<S>                                          <C>           <C>           
Balance at June 30, 1995 ..............      $(277,743)    $ (14,515,928)
  Issuance of common stock ............             --             1,096
  Issuance of warrants in connection       
    with bank line of credit ..........             --                --
  Expiration of warrants in                
    connection with capital leases ....             --                --
  Capital surplus from investment in       
    subsidiary ........................             --           474,108
  Net loss ............................             --        (8,609,087)
                                              --------       ----------- 
Balance at June 30, 1996 ..............       (277,743)      (22,649,811)
  Cancelation of notes receivable .....        266,933                --
  Net income ..........................             --         3,703,300
                                              --------       ----------- 
Balance at June 30, 1997 ..............        (10,810)      (18,946,511)
  Cancelation of notes receivable .....         10,810                --
  Expiration of warrants to purchase       
    Series B preferred stock ..........             --                --
  Net income ..........................             --         1,726,634
                                              --------       ----------- 
Balance at June 30, 1998 ..............      $       -     $ (17,219,877)
                                             =========     ============= 
</TABLE>


                             See accompanying notes.


                                      F-5
<PAGE>   24

                                  CENSTOR CORP.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                  YEARS ENDED JUNE 30,
                                                       -------------------------------------------
                                                           1996           1997             1998
                                                       -----------     -----------     -----------
<S>                                                    <C>             <C>             <C>        
OPERATING ACTIVITIES
Net income (loss) .................................    $(8,609,087)    $ 3,703,300     $ 1,726,634
Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
    Depreciation and amortization .................      1,456,658          18,043           6,266
    Gain on sale of fixed assets ..................       (145,908)             --              --
    Gain on transfer of research and
      development operation .......................             --      (1,596,706)             --
    Interest on subordinated debentures ...........        816,856         191,066              --
    Loss applicable to minority interest ..........       (194,642)             --              --
    Changes in assets and liabilities:
      Receivables and prepaid expenses ............        224,060          80,934          29,521
      Accounts payable ............................        271,778        (908,517)        (25,819)
      Deferred revenue ............................     (2,062,498)      3,916,668      (1,583,335)
      Other current liabilities ...................        114,769        (471,459)        (37,505)
                                                       -----------     -----------     -----------
                                                           481,073       1,230,029      (1,610,872)
                                                       -----------     -----------     -----------
Net cash provided by (used in) operating activities     (8,128,014)      4,933,329         115,762

INVESTING ACTIVITIES
Additions to property and equipment ...............       (191,668)             --              --
Deposits and other assets .........................             --         122,220              --
Proceeds from sale and leaseback
  and sale of fixed assets ........................        550,050       1,025,000              --
                                                       -----------     -----------     -----------
Net cash provided by investing activities .........        358,382       1,147,220              --

FINANCING ACTIVITIES
Proceeds from issuance of short- and
  long-term debt ..................................             --         350,000              --
Proceeds from short-term borrowings ...............      1,000,000              --              --
Proceeds from notes payable .......................      6,450,000              --              --
Proceeds from sale of preferred stock of subsidiary        540,000              --              --
Principal payments under capital leases ...........     (1,390,357)        (23,825)             --
Principal payments on short- and long-term debt ...             --      (5,901,244)             --
Release of certificate of deposit in connection
  with leases .....................................             --          94,450              --
Net proceeds from sale of capital stock ...........          1,096              --              --
                                                       -----------     -----------     -----------
Net cash provided by (used in) financing activities      6,600,739      (5,480,619)             --
                                                       -----------     -----------     -----------
Net increase (decrease) in cash and cash 
  equivalents......................................     (1,168,893)        599,930         115,762
Cash and cash equivalents at beginning of year ....      1,368,891         199,998         799,928
                                                       -----------     -----------     -----------
Cash and cash equivalents at end of year ..........    $   199,998     $   799,928     $   915,690
                                                       ===========     ===========     ===========
</TABLE>
                             See accompanying notes.

                                      F-6

<PAGE>   25

                                  CENSTOR CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  June 30, 1998
                                       
1.   ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Organization

        Censtor Corp. (the Company) licenses technology related to recording
heads and storage media utilizing contact magnetic recording technology. The
Company licenses its technology to disk drive and component manufacturers. The
Company's ability to fund its cash requirements and assert its intellectual
property rights in the future depends largely upon its success in seeking new
licensees. The Company believes its existing cash resources will enable it to
fund its planned operations through fiscal 1999. The Company's cash flow needs
in fiscal 1999 are primarily for operating expenses, which may include 
significant litigation expense.

        Consolidation

        The accompanying consolidated financial statements include the accounts
of the Company, Contact Recording Technology, Inc., an inactive manufacturing
company, and Censtor Media Corp., an inactive research and development company.

        Cash and Cash Equivalents

        The Company considers all highly liquid debt instruments purchased with 
an original maturity of three months or less to be cash equivalents. The Company
invests excess cash in money market funds with a local bank. These investments
are generally available upon demand and are collateralized by the assets of the
bank and the financial institution. Cash and cash equivalents are stated at fair
value, which approximates cost.

        Revenue Recognition

        License fees are generally recognized over the estimated period in which
the Company expects to provide support in connection with the license.

        Royalties from licensees on sales of licensed products will be 
recognized when products incorporating the Company's technology are shipped by
the licensees or when nonrefundable payments are received.



                                      F-7
<PAGE>   26

                                  CENSTOR CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)


        Use of Estimates

        The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

        Earnings Per Share

        In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). FAS 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented and, where necessary, restated to
conform to the FAS 128 requirements.

        The following table sets forth the components for the computation of 
basic and diluted earnings per share (in thousands):

<TABLE>
<CAPTION>
                                                    YEARS ENDED
                                     --------------------------------------
                                        1996           1997         1998
                                     -----------    ----------   ----------
<S>                                  <C>            <C>          <C>       
Numerator-net income (loss)          $(8,609,087)   $3,703,300   $1,726,634
                                     ===========    ==========   ==========
Denominator for basic earnings
  per share - weighted average
  shares                                   9,301         8,546        8,525
Effect of dilutive securities -
  convertible preferred stock                  -        14,988       14,988
                                     -----------    ----------   ----------

Denominator for diluted earnings
  per share - adjusted weighted
  average shares and assumed
  conversions                              9,301        23,534       23,513
                                     ===========    ==========   ==========
</TABLE>


        The warrants to purchase common and preferred stock were not included in
the calculation as their effect would have been antidilutive.




                                      F-8
<PAGE>   27

                                  CENSTOR CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)



        Major Licensees

        Significant customers accounted for the following percentages of net 
sales in fiscal 1996, 1997, and 1998:

<TABLE>
<CAPTION>
                                          YEARS ENDED JUNE 30,
                           ----------------------------------------------------
                                1996              1997              1998
                           ----------------  ----------------  ----------------
<S>                        <C>               <C>               <C> 
        Customer A               64%                -                 -
        Customer B               34%                -                 -
        Customer C                -                33%               43%
        Customer D                -                67%                8%
        Customer E                -                 -                49%
</TABLE>

        Reclassifications

        Certain reclassifications have been made to the 1997 financial 
statements to conform to the 1998 presentation.

        Related Party Transactions

        The Company utilizes outside sources for the performance of intellectual
property management duties. One of these companies is I.P. Managers, Inc. (IPM).
IPM has relationships with intellectual property law firms that provide legal
services to the Company. IPM also specializes in consulting and expert witness
services to the legal profession. During the year ended June 30, 1998, the
Company paid approximately $200,000 for such services.




                                      F-9
<PAGE>   28

                                  CENSTOR CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)


2.   THE READ-RITE TRANSACTION

        On March 29, 1996, the Company entered into an agreement (the Agreement)
with Read-Rite Corporation (Read-Rite), a large manufacturer of components for
disk drives, that provided for the transfer to Read-Rite of the Company's
research and development operations, including the hiring of eighty-four of its
employees and the sale of certain of the Company's physical assets, rights, and
obligations under contracts related thereto (the Read-Rite Transaction). The
Agreement was approved by the Company's shareholders on July 11, 1996, and the
Read-Rite Transaction closed on July 18, 1996 (the Closing).

        Additionally, upon the Closing, the Company granted a nonexclusive
irrevocable worldwide license to Read-Rite covering the Company's intellectual
property, including the Company's rights in patents, technology, and software.

        Gross proceeds to the Company in connection with the Read-Rite 
Transaction were approximately $9.0 million. The gross proceeds were reduced by
approximately $1.9 million, related to partial repayment of the outstanding
balance on certain notes payable to Read-Rite. The remaining balance on the
notes payable of approximately $900,000 was forgiven.

        Of the total proceeds, $8.0 million was in consideration for the grant 
of the license and $1.0 million for the sale of assets and transfer of the
assembled workforce. The Company recognized a gain of approximately $700,000 in
connection with the sale of assets and the transfer of the assembled workforce.

        The Company has granted to Read-Rite a security interest in its 
intellectual property to secure certain obligations and warranties with respect
to the intellectual property for a period of six years following the effective
date of the Agreement. After the third year following the effective date of the
Agreement, the Company may terminate the security interest by depositing $4.0
million in an escrow account. Such amount is reduced by $1.0 million in each of
the two succeeding years, and the escrow terminates the following year.
Accordingly, the Company is recognizing $4.0 million of such license fee ratably
over the first three years following the Closing, which approximates the time
period during which the Company expects to be incurring costs to maintain its
patents in support of the Company's license agreement with Read-Rite.
Subsequently, amounts will be recognized as the escrow fund described above is
reduced.




                                      F-10
<PAGE>   29

                                  CENSTOR CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)


3.   RESTRUCTURED DEBT OBLIGATION

        On September 30, 1996, $12.7 million of outstanding principal and 
accrued interest was forgiven related to subordinated debentures issued by the
Company in exchange for 5% of the royalties the Company receives from its
present and future licenses through the year 2001. The future cash payments
related to the payments owed to the former debentureholder are currently
indeterminate and may exceed the carrying value of the debentures prior to the
debt being forgiven. Therefore, the Company has deferred the recognition of any
gain as a result of the debt being forgiven until such time as the future cash
payments become estimable.

4.   CONVERTIBLE PREFERRED STOCK AND COMMON STOCK

        Convertible Preferred Stock

        The preferred stock is divided into Series A and B preferred stock as
follows:

<TABLE>
<CAPTION>
                                                SHARES
                                      -------------------------
                                                    ISSUED AND
                                      AUTHORIZED    OUTSTANDING       TOTAL
                                      ----------    -----------     ----------
<S>                                   <C>           <C>             <C>        
        Series A...................    7,500,000     6,617,299      $14,055,143
        Series B...................   14,000,000     8,370,508       18,453,888
        Undesignated...............    3,500,000             -                -
                                      ----------     ---------       ----------
                                      25,000,000    14,987,807      $32,509,031
                                      ==========    ==========      ===========
</TABLE>
        The holders of Series A and B preferred stock are entitled to
noncumulative dividends, as declared by the Board of Directors out of legally
available funds, at a rate of $0.2124 and $0.25 per share, per annum,
respectively. After payment of the dividend preferences and payment of
noncumulative dividends to the holders of common stock, as declared by the Board
of Directors out of legally available funds, at a rate of $0.10 per share, per
annum, the preferred stock shall participate, as if converted on a
share-for-share basis with common stock, as to any dividends paid by the
Company. Such dividends are noncumulative.



                                      F-11
<PAGE>   30

                                  CENSTOR CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)


        Series A and B preferred stock are convertible at any time after the
date of issuance into common stock on a one-for-one basis, subject to adjustment
for certain subsequent dilutive stock issuances. In addition, the Series A and B
preferred stock will automatically convert into common stock upon the closing of
an underwritten public offering of the Company's common stock at not less than
$4.00 per share, which results in gross proceeds of not less than $10 million,
or in the event of an affirmative vote of the holders of at least 51% of Series
A and B preferred stock.

        Upon liquidation, the Series B preferred shareholders are entitled to
receive an amount equal to $2.50 per share plus the aggregate amount of any
declared but unpaid dividends, after which the Series A preferred shareholders
are entitled to receive an amount equal to $2.124 per share plus the aggregate
amount of any declared but unpaid dividends. After the distributions above have
been made, remaining amounts shall be distributed among the holders of Series A
and B preferred stock and common stock pro rata, based on the number of shares
of common stock held by each shareholder, assuming conversion of all preferred
stock. Preferred shareholders participate in the voting rights of the Company as
if their shares were converted to common stock.

        Warrants to Purchase Preferred Stock

        At June 30, 1998, certain of the Company's former lessors held warrants
to purchase 301,318 shares of the Company's Series B preferred stock,
exercisable at $2.50 per share, through the later of September 2003 or five
years after the closing of a public offering of the Company's common stock.

        At June 30, 1998, the Company's primary bank held warrants to purchase
approximately 110,000 shares of the Company's preferred stock at the lower of
$2.50 or the share price of the next security issued by the Company, exercisable
from November 2000 through February 2001.

        Warrants to Purchase Common Stock

        At June 30, 1998, one of the Company's former lessors held warrants to
purchase 80,000 shares of the Company's common stock, exercisable at $2.50 per
share through the later of January 2005 or five years after the closing of a
public offering of the Company's common stock.



                                      F-12
<PAGE>   31

                                  CENSTOR CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)


        Stock Reserved for Future Issuance

        Shares of preferred and common stock reserved for future issuance are
411,318 and 15,479,125 shares, respectively, at June 30, 1998.

5. INCOME TAXES

        Income tax expenses for fiscal 1996 and 1998 consist of foreign
withholding taxes on license revenue, and income tax expense for fiscal 1997
consists of a provision for alternative minimum taxes.

        Significant components of the Company's deferred tax assets for federal
and state income taxes are as follows:
<TABLE>
<CAPTION>
                                                    JUNE 30,
                                        -------------------------------
                                             1997                1998
                                        ------------       ------------
<S>                                     <C>                <C>         
Deferred tax assets:
  Net operating loss carryforwards      $ 32,843,000       $ 30,000,000
  Tax credit carryforwards .......         4,425,000          4,392,000
  Other ..........................         3,050,000          1,000,000
                                        ------------       ------------
Total deferred tax assets ........        40,318,000         35,392,000
Valuation allowance ..............       (40,318,000)       (35,392,000)
                                        ------------       ------------
Net deferred tax assets ..........      $         --       $         --
                                        ============       ============
</TABLE>

        The change in the valuation allowance was a net decrease of $1,221,000
for fiscal 1997 and a net decrease of $4,926,000 for fiscal 1998. Income tax
expense reconciles to loss before income tax expense multiplied by the statutory
rate as follows:
<TABLE>
<CAPTION>
                                             YEARS ENDED JUNE 30,
                              ------------------------------------------------
                                  1996              1997               1998
                               -----------       -----------       -----------
<S>                            <C>               <C>               <C>        
Tax at statutory rate ...      $(2,885,000)      $ 1,282,355       $   639,572
Unbenefited tax losses ..        2,885,000                --                --
Benefit of operating loss
  carryforward ..........               --        (1,214,022)         (639,572)
Foreign withholding taxes
  under license agreement          319,450                --           154,460
                               -----------       -----------       -----------
Income tax expense ......      $   319,450       $    68,333       $   154,460
                               ===========       ===========       ===========
</TABLE>


                                      F-13
<PAGE>   32

                                  CENSTOR CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

        As of June 30, 1998, the Company had federal and state net operating
losses of approximately $83 million and $31 million, respectively, expiring in
various years beginning in 1999 through 2012. The Company also has federal and
state credit carryforwards of approximately $3 million and $1.5 million,
respectively, expiring in various years beginning in 1999 through 2010.

        Tax law provides that the use of net operating loss and credit
carryforwards is limited if there is a substantial change in the ownership of
the Company. Due to prior years' equity transactions, such a change has
occurred. Approximately $62 million of federal net operating loss and
substantially all credit carryforwards are subject to an annual limitation. The
annual limitation is approximately $1.2 million per year. The balance of $21
million of federal net operating loss carryforwards can be used without
limitation. Similar limitations apply to state carryforwards.

6. SUPPLEMENTAL CASH FLOW INFORMATION

        Payments for interest costs and significant noncash investing and
financing activities, not disclosed elsewhere, are as follows:
<TABLE>
<CAPTION>
                                                        YEARS ENDED JUNE 30,
                                             ------------------------------------------
                                                1996            1997            1998
                                             ----------      ----------      ----------
<S>                                          <C>             <C>             <C>       
Interest paid .........................      $   67,958      $2,088,000      $       --
Equipment purchased under capital
  leases ..............................      $   24,851      $       --      $       --
Conversion of note payable to license .      $       --      $3,000,000      $       --
Assignment of leases in connection with
  the Agreement .......................      $       --      $  584,018      $       --
Cancelation of note receivable ........      $       --      $  266,933      $   10,810
</TABLE>



                                      F-14
<PAGE>   33

                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) 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.


                                       Registrant

                                       CENSTOR CORP.


September 21, 1998                     By: /s/ Sabine Austin
                                           -------------------------------------
                                           Sabine Austin
                                           President

                                POWER OF ATTORNEY

        KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Sabine Austin as his
attorneys-in-fact, with full power of substitution for him in any and all
capacities, to sign any and all amendments to this Form 10-K, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact or his substitute or substitutes, may do or cause to be
done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
       Signature                   Capacity in Which Signed                           Date
       ---------                   ------------------------                           -----
<S>                         <C>                                                 <C> 
/s/ Sabine Austin           President and Director                              September 21, 1998
-----------------------     (Principal Financial and Accounting Officer)
Sabine Austin         



/s/ Gary J. Summers          Chairman of the Board, Chief Executive Officer     September 21, 1998
-----------------------      (Principal Executive Officer)
Gary J. Summers



/s/ Michael R. Morgan        Director                                           September 21, 1998
-----------------------
Michael R. Morgan
</TABLE>


                                      -18-
<PAGE>   34
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number                   Description
-------                  -----------    
<S>                      <C>
3.1 (5)                  Restated Articles of Incorporation of Registrant.

3.2 (1)                  Amended and Restated Bylaws of Registrant.

10.1 (1)(4)              1990 Stock Plan and Form of Option Agreement.

10.2 (1)                 Form of Indemnification Agreement entered into between
                         the Company and each of its directors and officers.

10.3 (1)                 Lease Agreement, dated November 28, 1983, between the
                         Company and The Sobrato Group, together with amendments
                         thereto.

10.4 (1)(2)              License Agreement, dated September 23, 1991, between
                         the Company and Maxtor Corporation, as amended.

10.5 (1)(2)              License Agreement, dated February 28, 1991, between the
                         Company and Fujitsu Limited, as amended.

10.6 (1)(2)              Manufacturing License Agreement, dated August 26, 1998,
                         between the Company and Denki Kagaku Kogyo Kabushiki
                         Kaisha, as amended.

10.7 (1)(2)              License Agreement, dated June 1, 1993, between the
                         Company and International Business Machines
                         Corporation.

10.8 (1)                 Denka Promissory Note.

10.9 (3)                 License Agreement, dated December 19, 1994, between
                         Hitachi, Ltd. and the Company.

10.10 (5)                License Agreement, dated June 19, 1995, between Contact
                         Recording Technology, Inc. and the Company.

10.11 (2)                License Agreement, dated August 7, 1995, between NEC
                         Corporation and the Company.

10.12(6)                 Agreement for Purchase and Sale of Assets by and
                         Between Read-Rite Corporation and the Company.

10.13(2)                 License Agreement, dated august 12, 1996, between
                         Western Digital and the Company.

10.14(7)                 Assignment of Lease and Consent to Assignment, dated
                         July 2, 1996, between The Sobrato Group, Censtor Corp.
                         and Read-Rite Corp.

10.15(7)                 Fifth Amendment to Manufacturing License Agreement,
                         dated February 22, 1996, with Denki Kagaku Kogyo
                         Kabushiki Kaisha.

10.16(7)                 Amendment to Terms of Debentures, dated February 22,
                         1996, with Denki Kagaku Kogyo Kabushiki Kaisha.

10.17(7)                 License Agreement, dated July 18, 1996, between
                         Read-Rite Corporation and the Company.

10.18(8)                 Agreement between I.P. Managers, Inc. and the Company
                         dated July 31, 1997.

10.19(8)                 Incentive Compensation Agreement between the Company
                         and Sabine Austin, dated July 29, 1997.

10.20(9)                 License Agreement, dated September 25, 1997 between TDK
                         Corporation and the Company.

24                       Power of Attorney (see signature page)

27.1                     Financial Data Schedule
</TABLE>

-------------------
(1)                Incorporated by reference to exhibits filed with Registrant's
                   Registration Statement on Form 10 which became effective
                   December 25, 1994.

(2)                Confidential Treatment requested for portions of Exhibit.

(3)                Incorporated by reference to exhibits filed with the
                   Registrant's Quarterly Report on Form 10-Q for the quarter
                   ended December 31, 1994.

(4)                Document indicated is a compensatory plan.

(5)                Incorporated by reference to exhibits filed with Registrant's
                   Annual Report on Form 10-K for the year ended June 30, 1995.

(6)                Incorporated by reference to exhibit filed with Registrant's
                   Proxy Statement relating to the Registrant's 1996 Annual
                   Meeting of Shareholders.

(7)                Incorporated by reference to exhibits filed with Registrant's
                   Annual Report on Form 10-K for the year ended June 30, 1996.

(8)                Incorporated by reference to exhibits filed with Registrant's
                   Annual Report on form 10-K for the year ended June 30, 1997.

(9)                Incorporated by reference to exhibits filed with Registrant's
                   Quarterly Report on Form 10-Q for the quarter ended September
                   30, 1997.