Azerbaijani businessman Mammadov – who also owns French club Lens and Baku in his homeland – agreed a deal to buy Wednesday from current owner Mandaric in June.
But Mammadov has "not been able to meet obligations" agreed in the deal amid financial complications in Azerbaijan and false reports of his arrest in July.
And Mandaric informed the club's supporters in a statement on Thursday that he would seek alternative investment, while he added that legal action was a significant possibility.
Mandaric – who has also owned Portsmouth and Leicester City previously – added that he was still committed to helping Wednesday return to the Premier League, a level they have not played at since 2000.
"Unfortunately despite working hard with both Mr Mammadov and his representatives since the agreement was signed, he has not been able to meet the obligations set out in the contract for either the purchase of the shares or the sponsorship arrangements," Mandaric wrote on the Wednesday website.
"Our supporters were extremely excited when the takeover was announced, like me they believed that Mr Mammadov offered a great opportunity for the club, in hindsight my desire to please our supporters probably clouded my decision to grant further time for him to complete the process.
"During this period I have continued to manage the business and to fund the ongoing financial requirements of the club as I have always done and will continue to do so.
"As supporters will have seen, we have fully committed to the sponsorship agreement, we are proudly wearing our new shirts with the 'Azerbaijan Land of Fire' logo and this alongside the other advertising inventory will give worldwide coverage to the country.
"Whilst I hope that Mr Mammadov will very quickly overcome his difficulties in Azerbaijan, I cannot allow this continued speculation to continue and have asked my legal advisors to take such legal action as they consider necessary.
"The club as always will attract people who are interested in acquiring a top English football club.
"Accordingly, I will explore every serious possibility and if I believe that there is someone who can accelerate our plans to return this club to the Premier League then I will do all in my power to welcome them to Sheffield."
