Combine sugar and egg in a bowl, and stir with a wire whisk until well-blended. Set aside.
Heat milk over medium-low heat in a small heavy saucepan to 180° or until tiny bubbles form around edge (do not boil). Gradually add hot milk to egg mixture, stirring constantly with a wire whisk; stir in extract.
Divide the mixture evenly between 2 (6-ounce) custard cups. Place cups in a baking pan, and add hot water to pan to a depth of 1 inch. Bake at 325° for 1 hour or until almost set (center will not be firm, but custard will set up as it chills). Remove cups from pan, and let cool. Cover and chill. Top each serving with 1 tablespoon whipped topping; sprinkle with 1 tablespoon toasted coconut.