AlGaAs materials are used in a variety of cutting-edge devices and the band gap states after the surface oxidization is found with Fermi level pinning. With first-principle calculations, we explore the formation of gap states during the initial stage of native-oxide growth on Al0.5Ga0.5As (001) surface. The results indicate that oxygen adsorption at the bridge sites of Al (Ga)-As satisfies the bond saturation and doesn't lead to any effect on the surface gap states. The breaking of As-As dimer results in the defect states in band gap with Fermi level pining due to the replacement of oxygen. In the oxidization process, it is found that the As-As dimer is very easy to be broken. In addition, the defect states in band gap maybe disappear after the full oxidization of surface with the elimination of unsaturated As on surface. With these gap states, some absorption peaks are found to appear in the range of 0-1 eV in the absorption spectra. (C) 2017 Elsevier B.V. All rights reserved.