The company, based in Tayport in Fife, reported a loss of £628,000 for last year, compared to a profit of £382,000 in 2012, according to documents recently filed at Companies House.
Chairman Nick Kuenssberg described trading in 2013 as "totally unsatisfactory."
Sales fell 11 per cent to £9.29m, with international revenues particularly badly hit.
The overall slump was made worse by agricultural customers delaying orders for new irrigation fabrics, Scott & Fyfe said.
UK turnover declined three per cent to £6.5m. In Australia and New Zealand, where the firm has been exporting since the 1980s, sales tumbled from £1.1m to £496,000. Europe fared slightly better, with sales rising from £694,000 to £909,000.
"We're finding it takes time to get new customers with new products in new market sectors, but in the second half of the year we're beginning to see the delivery of results and we are confident about our future," said Mr Kuenssberg yesterday.
Mr Kuenssberg led the company into employee ownership in late 2012, after more than a century and four generations as a family-owned firm with its roots in the Dundee jute industry.
Hamish Tough and his two sons sold their stakes to an employee benefit trust in December 2012.
Richard and David Tough remain shareholders and board members, and have signed up for £3.9m-worth of redeemable preference shares to bolster the company's financial position.
Mr Kuenssberg took over the chairman's role from Hamish Tough in 2009. The transformation into an employee benefit trust handed 98 employees shares worth £500 each, and 71 staff opened savings accounts within the company.
In 2013 Scott & Fyfe was forced to cut its headcount from 104 to 87, with job losses at all levels of the business, in response to "extremely difficult" trading conditions during that year.
The firm booked £184,000 in redundancy costs for the year.
The company - which makes carpet and underlay backing as well as materials for packaging reinforcement, irrigation, lining pipes, abrasives manufacturing, and the car industry - paid out no dividends or management bonuses.
Despite the losses, Scott & Fyfe had funds of £8m and cash balances of almost £4.2m at the end of the year, giving the firm the firepower to invest in growth this year.
The company said in its accounts that it has "a substantial pipeline of new products in both traditional and new markets which should begin to have an impact" but did not give any further details.
Scott & Fyfe has recently worked with an innovation team from the Glasgow School of Art to restructure their business and to ensure products get to market more quickly, a streamlining process that the firm said in its accounts "should see the company avoiding losses."
"There is no doubt that the company has already begun to see significant benefits from this transformation in terms of attitude, responsibility, flexibility, understanding and communication," the firm said.
Scott & Fyfe was founded in 1864 as a linen works that supplied sails to boats on the River Tay.
William Hurrie Tough, the first of his family to work for the company, joined in 1887 as a trainee clerk.