Here are 2 different pieces of code. 1st is the timer code. It's best to use the Timer class for this type of thing. It'll track time properly. 2nd is the formatting code. I added it just for convenience. Do you need any further help to transform this to what you want? You'll mainly need to start/stop the timer based upon myTimer.currentCount. That count is for seconds.
Code:
//Timer code:
var myTimer:Timer = new Timer(1000);
myTimer.addEventListener(TimerEvent.TIMER, timerListener);
function timerListener(e:TimerEvent):void {
time.text = formatTime(myTimer.currentCount);
}
myTimer.start();
//Formatting code:
function formatTime(input:int):String {
var hrs:String = (input > 3600 ? Math.floor(input / 3600) + ':' : '');
var mins:String = (hrs && input % 3600 < 600 ? '0' : '') + Math.floor(input % 3600 / 60) + ':';
var secs:String = (input % 60 < 10 ? '0' : '') + input % 60;
return hrs + mins + secs;
}