Q: I am trying to transfer files from MacBook running OSX 10.7.5 toIMac running OSX 10.9.1.  I verified all software updates installed.  Both connected directly by ethernet cable.  On the IMac I get "Looking for other sources".  On MacBook get "looking ....

If you are connecting the two computers directly to each other with an ethernet cable, you need a special "crossover" cable to swap the send/receive pins so the data sent from one computer arrives on the "receive" pins on the other end of the cable, not on the "send" pins that you get with a straight cable.

Did you install this update?

http://support.apple.com/kb/DL1695?viewlocale=en_US&locale=en_US

If you are connecting the two computers directly to each other with an ethernet cable, you need a special "crossover" cable to swap the send/receive pins so the data sent from one computer arrives on the "receive" pins on the other end of the cable, not on the "send" pins that you get with a straight cable.

Incorrect, you do not need a special crossover cable. Any cable will do.