The recent progress in the fabrication of drops and microcapsules of desired sizes and properties has made the study of drop formation in a co-flowing fluid stream increasingly important. We will present our numerical results for the formation of a drop at the tip of a needle with a co-flowing fluid stream. The drop phase as well as the bulk phase is treated as an incompressible Newtonian fluid. The effects of the ratio of flow rates and viscosity of the inner and outer fluid on the drop volume and break up time are investigated. As the flow rate of the outer fluid increases, the drop breaks faster with smaller bubble volumes. We will also present the effect of adding soluble surfactants on the drop formation process in the co-flowing system. The non-uniform distribution of surfactants at the fluid interface generates Marangoni stresses that affect the neck formation and break up.