[XCart4Life]

It's because you're looking in the wrong files. Usually the templates are for editing the design aspect of your site. Most of the functions will be connected to an external file. Instead find this file:

/modules/Flyout_Menus/func.php

As far as the part that 'governs the if-there-are-subcats do this and if-there-are-not do this behavior'....look around line #300. I just took a quick glance.