Bermuda Bakery Ltd.'s losses in its bakery division were offset by higher profits in its rental division to give the company a net income of $137,602 for 1996.

In the 1995 year ended December 31, the company had net income of $17,843, which dropped from $320,264 in 1994 partially due to financial irregularities at the Bakery and the costs of a subsequent fraud investigation.

The company's bakery division lost $216,655 in 1996 compared to a $274 profit the previous year. The losses were attributed to a four percent decline in sales to $4,633,781, a three percent rise in operating expenses to $2,177,851, and a 28 percent drop in interest and dividend income to $97,612.

The rental division made a profit of $346,231 in 1996, a rise of about 49 percent over $233,024 earned the previous year. While rents paid was about the same for the two years, a decrease in expenditures on the properties led to the increase in profit for the division.

The company spent $96,334 on its fraud investigation in 1996 compared to $119,500 spent the previous year. Company chairman James Pearman and general manager John Hirschi were unavailable for comment as they were off the Island yesterday.

In February the company won a $733,216 judgment plus interest against its former controller Earl Fithian in default of appearance. The company will likely go after the assets Mr. Fithian has in Bermuda.

"Any recoveries resulting from this action will be recorded as income when received by the company,'' the annual report stated. "Subsequent to year end, a significant portion of these funds have been received by the company.'' The company wants to recover amounts it had to repay tenants of its property, the Belvedere Building, who were overcharged for land tax and electricity, amounts to be paid out for payroll and other taxes, insurance premiums and pensions, amounts taken from sales receipts and amounts paid for professional services for the investigation.

The company's total property, the Bakery and the Belvedere Building, was valued at $13.5 million in 1990. If the balance sheet as at December 31 1996 was adjusted to reflect the 1990 valuation shareholders' equity per share would increase to $58.78 per share from $12.98, the company's annual report stated.

The company's stock last traded on the Bermuda Stock Exchange at $18 on June 4.