An audio coding system has been designed and software implemented usins-Sub-Band Adaptive Differential Pulse Code Modulation (SB-ADPCM), foi coding 7 kHz Audio signal. The system has two parts, a transmitter, which consists of Lower SB-ADPCM encoder for encoding the sub-band (50-4000Hz), and Higher SBADPCM encoder for encoding the Higher sub-band (4000-7000Hz), and a receiver, which consists of a Lower SB-ADPCM decoder anc Higher SB-ADPCM decoder in relating to those of the transmitter part. First, the audio input signal is quantized using Analog to Digital converter with 14-bit resolution and 16kHz sampling frequency, i.e. (224k bit/sec), then it is separated into two sub-bands, lower and higher band, using a Quadrature Mirror Filter (QMF) at 4000Hz cutoff frequency, then each sub-band is encoded in its encoding module. The resultant of both encoders would be multiplexed onto 64k bit/sec.At the receiver the encoded signal is demultiplexed and each subband signal will be appropriately decoded. The Lower and Higher decoded signals are then merged using inverse Quadrature Mirror Filter (Inverse QMF). One or two subchannels of the lower sub-band encoded signal can be dedicated for auxiliary data transfer. The system 'was designed and software implemented using MATLAB compiler R-12, then the system was tested by encoding a variety of audio signals. At the three transmission modes of operation, the distortion rate was measured by comparing the transmitted and the received signals at each terminal. The lowest distortion rate acquired was (6.7753exp-7) at mode one, where, no bit sub-channels were dedicated for auxiliary data, little more (5.4453exp-6) in mode two, where, one bit sub-channel was dedicated for auxiliary data, and the highest distortion rate was (3.3363exp-5) acquired at mode three, where, two bits subchannels were edicated for auxiliary data.