Line a 9x5x3-inch or 8x4x2-inch loaf pan with foil; butter foil. In a heavy medium saucepan, melt caramels over medium-low heat.
Remove from heat; stir in coconut and coconut flavoring. Spread in prepared pan. Let cool until set.
Lift foil and candy out of pan. Use a sharp buttered knife to cut candy into 36 pieces. Dip each piece into melted chocolate. Immediately roll in rice cereal.
Place on a waxed-paper-lined baking sheet and chill until set. Dip into chocolate again. Replace on baking sheet and chill until set.