An admission by Educational Alternatives Inc. that it exaggerated the progress of its Baltimore students has undercut the already tenuous credibility of the for-profit school-management company, industry analysts said yesterday.

But the revelation may make little difference in cities such as Baltimore, and Hartford, Conn., where many teachers, parents and administrators already are polarized over the company's plans.

The Minneapolis Star Tribune reported Saturday that EAI, which manages 12 Baltimore schools, inaccurately reported 1993 Baltimore test scores when it claimed it had raised students' abilities by nearly a grade in three months.

"Their fingers got charred on this one," said Michael Sabbann, who follows EAI's stock for the Piper Jaffray stock brokerage house in Minneapolis.

Mr. Sabbann, who still recommends EAI, said he believes that the report was not intentionally inaccurate. Nevertheless, he thinks the error will convince some undecided parents and school officials that EAI is not entirely trustworthy. "The results can be serious," he said.

The price of EAI's stock tumbled a total of $3, or 18 percent, Monday and yesterday, and it fell another 75 cents yesterday, closing at $14. On Aug. 26, 1993, the day the company issued the overly optimistic test results, the stock had risen 62.5 cents, to $34.50.

Some analysts noted that Monday's admission is the latest in a string of mistakes and questionable tactics.

Pamela Lund, an analyst for John G. Kinnard & Co., another Minneapolis-based brokerage house, removed her buy recommendation for the stock, saying the admission "raises the issue of the company's integrity, and that's the key."

"So many issues have been raised already," she said, noting, for example, that the company announced in February that it would change its accounting procedures after critics complained that it was inflating its revenues.

While she said she still expects Hartford officials to hire EAI to run their schools, Ms. Lund predicted that the test result controversy will hurt the company. "Hartford will be much more wary and watchful about how they [EAI officials] manage" schools, she predicted.

The Hartford school board has agreed to bring in an outside firm to run its city's entire 26,000-pupil school system, and plans to make a final decision on EAI's bid by next month.

The decision to invite EAI into Hartford has been marked by bitter debate and the revelations appeared to have further inflamed the company's detractors but not dissuaded the company's supporters.

"I would hope that if they falsified test scores that they would be disqualified," said William E. Meagher, president of the Hartford Board of Education and one of three dissenting votes against EAI on the board.

The Hartford teachers union hopes the new disclosures will derail the plans to bring EAI to its town, an official said. "I plan to get this information out as soon as possible," said Jeanne Spencer, president of the Hartford Federation of Teachers.

But many others involved in the Hartford debate said the revelation may not change many minds there because in presentations last spring the company never made claims about student performance in Baltimore.

"They did not make these allegations about test scores to us," said Elizabeth Brad Noel, a member of the Hartford school board, and one of three dissenting votes opposing EAI.

Ted Carroll, a supporter of EAI on the Hartford board, said that, while test results from the past are insignificant, he is looking forward to new Baltimore scores expected to be released later this month. Those scores, he said, may affect how deeply involved EAI becomes in Hartford. The board has yet to determine whether it wants to turn over curriculum as well as operational matters to an outside firm.

Last August, EAI sent out press releases boasting that 4,800 students attending its Baltimore schools had advanced an average of nearly a full grade level in three months under the company's operation. John Golle, the company president, called the scores proof of the company's success.

Walter G. Amprey, the Baltimore school superintendent, added his voice of praise. "This is one more piece of evidence that the Tesseract philosophy is serving our children well," he was quoted as saying. On standardized tests given last spring to all city students, scores for those in the nine EAI-run "Tesseract" schools declined slightly.

After the release of the Baltimore erroneous test scores and expansion opportunities in other cities, the company's stock rose, reaching a high of $48.50 on Nov. 12, 1993.

The company now concedes that the improvement in test scores did not pertain to students in all the Baltimore schools it runs. The scores actually apply to a much smaller subgroup, 954 underachieving students in five schools.

The test results -- and EAI's claims -- were not based on generally accepted standardized tests recognized by the city, the state and educators elsewhere. Instead, the computerized tests measured students' progress on the SuccessMaker Program, developed by Computer Curriculum Corp. Even in Baltimore, as EAI touted the results, most school officials admitted they gave little credence to them.

Lory Sutton, spokeswoman for EAI, insisted last night that the mistake was an innocent one, and should not make people question the company's integrity.

"It was a completely unintentional error. We corrected it as soon as we realized it. We are a credible company," she said.

Ms. Sutton said the company discounted standardized school-wide tests that showed Baltimore Tesseract students actually performed worse last year than they did before EAI took over. Those tests taken only three months into their program, too soon to fairly test the effect of the EAI program, she said.

EAI is awaiting the late June release of standardized tests of all Baltimore public school students, for a better analysis of how they are doing.

She noted that another EAI school, the South Pointe Elementary School in Dade County, Fla., last week released Stanford Achievement Test results showing steady improvement for Tesseract students.

In Baltimore, news of the false reporting did not seem to make much difference in a city already polarized by EAI. "It goes to the very heart of the credibility of EAI and the Tesseract school model," said Irene Dandridge, president of the Baltimore Teachers Union. "We knew they had over-reported and were wondering how long it would take the rest of the world to find out about it."

Clinton R. Coleman, a spokesman for Mayor Kurt L. Schmoke, said the controversy over the test scores underlined the need for the third party evaluation the mayor has proposed. The city is putting out bids for a firm to evaluate EAI's performance.

Donna Franks, a school system spokeswoman, said Mr. Golle had told Dr. Amprey of the overstated test scores about three weeks ago.

"We believe it's an honest mistake," she said.

She said city school system officials put little stock in the scores because they were based on the computer program and not standardized tests recognized by the city or state.

"When we got those scores last year, we were pleased but we didn't consider them valid, so they never really carried any validity for us."