L1b extension denied, H1B not selected in lottery, valid I94 for 1 year.

This is a conversation to have with your employer's attorney. Depending on the circumstances, I would consider challenging the L1B denial and/or refile it. Your employer might have another attorney look at the filing to see if it could have been done better. As to a PERM, one year is barely enough to do a PERM, file an I-140 premium processing, and then file the I-485 with EAD coming within 90 days. Your employer and your attorney would need to work very efficiently and aggressively to get this done within 1 year.

When is the I-94 valid until? Just curios to know whether extension was timely filed.

A perm may be filed if you are outside the country. Speak with your employers attorney as normally L-1b are granted for 3 years and 2 years, not sure how you go to 4 years.

If the initial L1b remains valid, then the beneficiary may continue to work under its terms and conditions. You should seek counsel with the employer's attorney who helped file the L1b extension and see if a challenge is warranted for the denial. A PERM may also be filed, but if the immigrant visa is not immediately available, then there should be discussion on how the beneficiary will stay and work beyond the current I94 or leave the U.S. accordingly.