Seven-times world champion Hendry was beaten 3-0 in the semi-finals by Leeds cueman Peter Lines.
Now aged 48, Hendry retired after being knocked out of the 2012 World Championship by Stephen Maguire in the quarter-finals.
This week's event at Scunthorpe's Baths Hall offers the winner a place in the World Championship qualifying event, which takes place next month in the days leading up to the main event.
And although Hendry won his opening match on Thursday, the Scot was well beaten by Lines, a 47-year-old amateur who remains active on the main tour and beat the defending champion Neil Robertson at the UK Championship in November.
Read the full article on eurosport.co.uk: Hendry bid to reach Crucible ended by Lines