You should initialize B0 to be 0 and it's best to use Select Case for this code:
Code:
Select Case B0
	Case 0:
		high led_1
		pause 100
		low led_1
		B0 = B0 + 1
	Case 1:
		high led_2
		pause 100
		low led_2
		B0 = B0 + 1
	Case Else
		high led_3
		pause 100
		low led_3
		B0 = 0
End Select