How to build research paper based on a unpublished paper?
Actually, the paper in question has been published, otherwise you sure couldn't read it :)

I admit that may sound stupid and unhelpful, but I think there is more to it that you recognize. The paper you built upon has been published, but not through conventional means. It doesn't mean you can't use it, but a few specific “rules of thumb” have to be observed:


Refer to the paper by its URL and, if identifiable, the owner/editor/publisher of the website. Example:


  “Link between al dente cooking time and a change of slope in the pasta fractal length”, A. N. Onym, http://bigpasta.com/paper42.pdf (publisher: Pasta Inc.)

Because this content may have a shorter lifetime than academic publications, you should quote directly all necessary claims made into this work in your paper, rather than merely using the reference on a vague claim. Your paper should be standalone, and fully understandable even if the other one disappears.
You may also contact the original paper author, if possible, to ask how they would like to be cited. Perhaps they have another related work which you missed, that was published in a more conventional way?