Mac factory reset

I'm trying to factory reset an old iMac 10.7. all advice is to restart the PC and hold command R, but despite repeating this several time it still opens as normal. I have tried several variations of this eg command-alt-R but is still does not work. I have even tried to erase the HD on disc utility but the option is greyed out!. How in the **** can I simply do this? Would appreciate an easy option from any technical experts out there - help!!!

Many thanks in anticipation from a frantic and frustrated Mac user.