A friend of mine who came here on B1 visa won a DV loto visa 2008 ,he first applied for adjustment of status when his I-94 was valid and went for an interview everything went well the only problem that time was his background check was not ready ,however USCIS has sent him a letter 2 months later to reapply for a new application as his rank number was not avalaible the first time he put the applications in . Meantime to maintain his status he applied for extension which is still pending ,when the rank number become avalaible and went for the second interview ,unfortunately the case was denied because he didn't have any I-94 even though he has the receipt for his extension pending.They immigration promised to send him a denial letter .
I want to know what can happen to him and what can he do to stay legally in this country .
Thanks

He has the right to file an appeal but it's likely to be denied. The key issue of getting a Green card Lotto is you must be qualified, and in this case "overstay record" jeopardized the case. Your friend should have left before I-94 expired and waited for visa number to be current in his/her home country.

Can he work if the appeal is pending since he has a valid work permit when he submitted the first I-485 .

If he already has EAD card, he can work while the appeal process is pending, but technically speaking, EAD card obtained on a condition of "I-485 pending" is invalid as soon as he received notice of denial. He won't be able to renew EAD card or driver's license.

Thank you very much for your help ,but when you say technically the EAD is not valid ,does it mean if the ICE checked him while working he can be arrested?

If he already has a job, he should be OK but if he applies for a new job and the employer requires background check, legal status verification, he won't make it. If the appeal is final and the case is denied, he could be arrested.