After you've beaten Red and gotten one of the Kanto starters, you need to head to the Pokemon Fan Club in Vermilion City. When you exit, you'll see Steven waiting outside where he'll say Latias (Heartgold, Latios for Soulsilver) is roaming Kanto. After that, head to Sliph Co where Steven will be on the right side. He will then ask you to choose a colored stone. Choosing the Green stone will make him give you Treecko, Choosing the Red stone will make him give you Torchic. Choosing the Blue stone will make him give you Mudkip. Make sure you have an open slot when you talk to him.
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