sub category lists posts but first post is missing

Hi all – can somebody please help me, I’m getting so frustrated with a certain issue.

I’m trying to display all subcategories and their posts on a page using the following code:
http://pastebin.com/SuiRQkzG

The permalinks seem to be working correctly but the first item is actually being displayed as the second item, with the first item pulling the category title and therefore no image. See here: http://www.iamrebeccaallen.co.uk/wordpress/wordpress/?page_id=20

Help!