Barry Lewtas' charges bounced back from their opening 4-2 loss to FC Schalke 04 on Friday to reach the last four.
FC Schalke took a 3-0 half-time lead before the young Reds staged a second half comeback.
An own goal and an effort from Leighton Clarkson got it back to 3-2 and Neco Williams also hit the bar.
With almost the last kick of the game and the Reds pushing for an equaliser a quick break saw the German outfit secure their victory with a fourth goal.
Next up on Saturday morning were Gremio from Brazil.