Preheat oven to 275°.
Place 1 sleeve of crackers, ½ teaspoon of cayenne, ½ tablespoon salt, and nutmeg into food processor. Pulse the mixture to form a fine crumb.
Combine meat, crumbs, and 1 egg and stir to combine. Form into ½ inch balls and set aside.
Place the other sleeve of crackers, bacon, ½ teaspoon cayenne, ½ tablespoon salt, and brown sugar into food processor. Pulse to form a fine crumb. Set aside.
Beat 2 eggs with the water. Dip the meatballs into egg wash and then roll in reserved crumb mixture.
Heat 2 inches of oil over medium heat until it reaches 350°.
Working in batches, fry the meatballs until golden brown, about 1 minute, making sure to turn them to ensure even browning.
Place meatballs on a foil-lined baking sheet and bake in preheated oven for 20 minutes or until cooked through (160°).