As profits dwindled, the Fleischers had to frequently request loans from Paramount and eventually had to surrender their shares of the studio. Even worse, Max and Dave were no longer speaking to each other as a result of professional and personal disputes.^[2] Paramount had both Fleischers submit a signed letter of resignation, to be used at Paramount's discretion, in order for the Fleischer Studio to receive financing for the 1940–1941 film season. On May 24, 1941, Paramount called their loans and assumed full ownership of Fleischer Studios, Inc.^[3] The Fleischers remained in control of production through the end of 1941.

Mr. Bug Goes to Town was finally released on December 5, 1941. Its release fell just two days before the bombing of Pearl Harbor, which brought the United States into World War II. Mr. Bug failed to get a general release, and while it was made within its $500,000 budget, its costs could not be recouped. While Dave Fleischer was in Hollywood supervising post-production on Mister Bug, Max Fleischer sent a telegram to Paramount explaining that he could no longer work with Dave, and Paramount produced the letters of resignation. As a result, the Fleischers were removed from control of the studio ^[3] and Paramount formed a new company, Famous Studios, as a successor to Fleischer Studios in mid-1942.

Dave Fleischer moved permanently to California, and in April 1942 became head of Columbia's Screen Gems cartoon studio. Max Fleischer went on to become Head of the Animation Division of the Jam Handy Organization, and Sam Buchwald, Isadore Sparber, Dan Gordon, and Max Fleischer's son-in-law Seymour Kneitel became the new heads of Famous Studios, which was moved back to New York by 1943.^[3] The Fleischers were never a major force in the industry again, but their films and characters have remained popular. By the 1980s, the Fleischers were recognized as the animation pioneers that they really were. Fleischer Studios is based in Los Angeles today, and handles the merchandise licensing of Betty Boop and several other original Fleischer characters.