The server is requesting more memory than the jvm has been allocated, this can be fixed by setting the parameter in the projects run configuration VM options, run it with the argument
-Xmx1g
That will set the max heap size to 1GB more than enough to run a server.
If you're having trouble finding where the sprites are loaded from, try and look through the code to where they are loaded from, with enough digging you will certainly find your answer.
To be fair, i think if you're asking a question like this, i don't think you have the experise to implement this. Also your question is very unspecific, which 'code' are you referring to?