Heat oven to 350 degrees F. Place a rack on a baking sheet and coat with nonstick cooking spray.

In a large bowl, mix ground beef, egg, bread crumbs, garlic salt, 1/2 teaspoon of the Italian seasoning and 1/4 teaspoon of the black pepper. Form into 40 meatballs, about 1 level tablespoon each. Place on prepared rack over baking sheet.

Bake meatballs at 350 degrees F for 20 minutes.

Meanwhile, heat olive oil in a large nonstick skillet over medium-high heat. Add onion and mushrooms and cook 6 to 7 minutes, stirring occasionally or until lightly browned. Sprinkle flour over the mixture, stir and cook 1 minute. Gradually stir in beef broth until the flour is completely incorporated into the liquid. Bring to a simmer. Stir in the remaining 1/2 teaspoon Italian seasoning, 1/4 teaspoon pepper and the nutmeg.

Add meatballs to the skillet and reduce heat to medium-low. Cover and simmer for 10 minutes, stirring occasionally. Serve with buttered egg noodles and steamed spinach.