The Laugh-o-Gram series had proved to be popular, but, unfortunately, financially unsuccessful. The company had been forced to find other outside projects in order to pay an ever growing stack of debts. (One of these was a dental hygiene film, "Tommy Tucker's Tooth.") However, Disney was already looking ahead to newer ideas in animation.

The Fleischer brothers had already achieved some moderate success with their "Out of the Inkwell" series in which a cartoon character would jump into and interact with the real world. Disney envisioned a series where a live actor would be put into a cartoon world. He enlisted a young actress, Virginia Davis (who had previously appeared in a few of the Film Ad shorts) and began working on "Alice's Wonderland."

Disney put all of his and his animators efforts into the new short. In the meantime, finally bowing to the economic pressure, Laugh-O-Grams went bankrupt. Disney knew that if he was ever going to attract national attention, he would need to get out of Kansas City and get to where movies were really being made. So, he took his completed print of "Alice's Wonderland" and, with a reported $40 in his pocket, set off to Hollywood.

The only person to go with him from the old studio, though, was his old friend Ub Iwerks. Hugh Harman, Rudolph Ising, and Carmen Maxwell went off to form the "Arabian Nights Cartoon Studio" and then later, "Harman-Ising Studios" which, ironically, Disney called upon for help in at least one instance.