I'm wondering what level of baseball you were watching. The regulations could be different for different leagues.
A timer like you describe is usually for the benefit of broadcasters to have a specific amount of time to break for commercials. The extra five seconds would let them rejoin after two minutes and not be in the middle of the first pitch.
The umpire will hold the game to not start before the time is up. Once done, the ump should control the pace of game as at any other point in an inning. If the players aren't ready, he'll go and try to move them along. There's no automatic penalty for not being ready.
Now if the ump feels that someone is trying to delay the game intentionally, he can force things to happen, but that isn't usually necessary.
In MLB, 5.07(c) specifies that when there are no runners on base, the pitcher should be delivering the pitch within 12 seconds of having the ball and being notified that it is in play. This rule is rarely invoked in the majors.
When the bases are unoccupied, the pitcher shall
deliver the ball to the batter within 12 seconds after he receives the
ball. Each time the pitcher delays the game by violating this rule,
the umpire shall call “Ball.”
The 12-second timing starts when the
pitcher is in possession of the ball and the batter is in the box,
alert to the pitcher. The timing stops when the pitcher releases the
The intent of this rule is to avoid unnecessary delays. The
umpire shall insist that the catcher return the ball promptly to the
pitcher, and that the pitcher take his position on the
rubber promptly. Obvious delay by the pitcher should instantly be
penalized by the umpire.
5.04 (b) (4) (A) has the comment
If the batter intentionally leaves the batter’s box and delays play,
and none of the exceptions listed in Rule 5.04(b)(4)(A)(i) through
(viii) applies, the umpire shall
issue a warning to the batter for the batter’s first violation of this
Rule in a game. For a batter’s second or subsequent violations of this
Rule in a game, the League President may issue an appropriate
Finally, this MLB Press release indicates that as of the 2015 season, the between-inning break is 2 minutes 5 seconds when games are televised locally and 2 minutes 25 seconds when televised nationally.