How old were the kids? That could also make a difference as to whom you approach. Also, maybe your neighbors kid was not being mechallel only his friend.(sad either way)Unless you have definitive proof think a million times over about if he was mechallel shabbos speak to your Rov or another qualified rov that handles family crisis as if this is befarhesia then it is a huge issue (which the parents might or might not know about)
While in high school, two boys were kicked out (in different grades) after people called the yeshiva that they saw them acting inappropriate of a yeshiva boy, instead of speaking to the family or family rav instead. The boys were persona non gratta in the yeshiva.The Rebbes did not even try to help them overcome their temptations and went straight for the hammer and threw them out. One boy was lost for a bit but straightened out. The other took it as a wakeup call but was very emotionally damaged and embarrassed as to why he was asked to leave.