HOUSTON -- The potentially devastating quote was, "They're on to us."

A former high-ranking Enron official testified on Thursday that those words came from Chief Executive Jeffrey Skilling after a small analyst firm produced a research note that criticized some of Enron's sales.

Kevin Hannon testified that Skilling's statement seemed to indicate the investment community was beginning to understand how Enron made money.

Hannon's statements are a potential blow to the defendants in the Enron trial, Skilling and company founder Kenneth Lay.

They offered a direct challenge to the defendants' insistence that there was no fraud at Enron.

Hannon's revelation of Skilling's comment during a May 2001 meeting of Enron's upper echelon of executives -- including Lay -- came in the last 10 minutes of testimony Thursday.

Hannon was scheduled to resume his testimony when the federal fraud and conspiracy trial continues on Monday in Houston.

Ex-Enron CFO To Testify Next Week

Former chief financial officer Andrew Fastow was also expected to take the stand next week against Lay and Skilling, his former bosses.

Fastow is serving a 10-year sentence for conspiracy for using off-the-books partnerships to help manipulate Enron's reported earnings while skimming millions for himself.

Fastow will make his first public statements about his admitted crimes at Enron. His testimony could be devastating to his former bosses, who insist that they did nothing wrong and that no fraud occurred at the company.

Skilling faces 31 counts of fraud, conspiracy, insider trading and lying to auditors for allegedly lying about Enron's financial strength.

Lay faces seven counts of fraud and conspiracy for perpetuating the alleged scheme after Skilling resigned in August 2001.

Both men have pleaded not guilty.

If convicted, each could face decades in prison and millions of dollars in penalties.

Enron was once the nation's seventh-largest company.

Before 2001, it was considered an innovative new-economy maverick and admired as a top stock performer. But a spectacular collapse left thousands jobless and slammed Wall Street with billions in losses.