Pagination on categories page with pagination.php function

I have set up a wordpress site that uses Ultra Business WordPress Theme. It has a built in pagination.php
The problem I am having is that I set up the blog page to call up just a particular category and pagination isnt working there.
Here is a link to the page;
http://bethmichelle.com/?page_id=79
When you click page 2 on the bottom, it returns to page 1. How can I manipulate pagination to work for the categories?

Here is the code from the blog-template.php;

<?php
//Pagination
if (function_exists("pagination")) { pagination($additional_loop->max_num_pages); } ?>

and here is the code from the pagination.php function;

[code moderated – please use the pastebin]

I don’t know too much about coding, but i should be able to follow. Note, that it does work on the archive page here
http://bethmichelle.com/?m=201103

thanks!!!