Scarylittle theme- category and sub cat indentation

i cant seem to get the sub cats of a category to indent under there parent cat when editing the sidebar page of this theme “scary-little-08”

Here is the code

<div class=”itemhead”><span style=”background: url(<?php bloginfo(‘template_directory’); ?>/icons/group.gif) left no-repeat;”><?php echo(“categories”); ?></span></div>

<h2><?php _e(‘Categories’); ?></h2>
<li class=”shadow”>
<?php wp_list_cats(); ?>