The Greenock business, founded more than 100 years ago and which also makes frozen desserts, blamed the tough trading conditions on the high street for the decline in turnover from £15.4 million to almost £15m.
Meanwhile, rising costs hit margins, which resulted in pre-tax losses going from £654,582 to £867,404 in the 12 months to March 31, 2012.
In accounts filed at Companies House for Aulds Holdings, the directors, including chief executive Alan Marr, said: "Depressed trading conditions on the high street and the general eating-out market together with intense pressure on margins due to increased material, labour and energy costs have affected the company's performance during the year."
The directors said they had been taking measures to help improve the financial performance.
They added: "Very significant cost reductions together with rationalisation of the company's retail portfolio have stabilised the position and investment in other market channels and operational efficiencies are being made to ensure long-term margin improvement."
Distribution costs were steady at almost £443,000 while administration costs went from £2.28m to £2.15m.
Average staff numbers dropped from 505 to 492 with the main reduction in sales and distribution workers. Overall employee costs fell from £6.9m to £6.67m as a result.
Directors' emoluments including pension payments went down from £286,371 to £278,359.
The highest paid director received more than £157,000 although that was almost £15,000 less than the previous year.
Capital expenditure was down from £196,295 to £76,134 while property rental charges went from £984,911 to £898,919.
The business ended the period with £1.18m of stocks made up of £525,682 worth of raw materials and consumables, £628,644 of finished goods and £27,642 of work in progress
Aulds Holdings includes Thomas Auld & Sons, Aulds Catering, Aulds Delicious Desserts and Aulds Bakeries.
The privately owned business finished the financial year with cash at the bank and in hand of £186,833, down from more than £700,000 in the previous period.
Group net assets declined from £1.2m to £901,000.
The accounts show the company's pension scheme liability widened from £216,000 to £509,000.
Aulds still has almost 40 high street stores across more than 20 towns with the majority of outlets in west central Scotland.
The desserts arm employs around 100 people at a factory in Inchinnan, Renfrewshire. It supplies to food service companies which then sell the products – including cheesecakes, sundaes and tortes – to pubs and restaurants.
It is also mainly responsible for around £74,000 of sales into Europe.
Since the financial year end Aulds has switched its stores and factories to a green energy tariff with SSE and overhauled some of its branches. The bakery arm has also removed artificial colours and flavourings from its products.
The bakery sector has not been immune from the pressures in the retail sector which has seen high street giants such as Comet, Woolworths, Habitat and Game fall into administration.
In Scotland, baker Mathiesons has been in administration twice, most recently in May 2012. Durham-based Peters Bakery and Scarborough's Bakery Products were also in administration during the past 12 months.