The compiler is telling you the problem. At a quick look, I cannot locate the lines that are causing the problem.

Where is the variable 'flag' declared?

Your code has many architectural problems - having global variables is one such issue.

this line looks suspicious 0.001AH: LCD_init();


Also, Why don't you write a lcd_pstring function rather than having individual calls for each character to write to the lcd!

void lcd_pstring(char *str)
{
while(*str)
{
lcd_write(1,*str++);
}
}

Why do you keep on calling lcd_init()? Write a routine to locate the cursor. It would make your code easier to read!

Write your code a separate routines that pass information to each other rather than rely on each other explicitly! This makes your code easier to read and to debug.
to print a string: lcd_pstring("Hello");