Place 1 cup of milk in a microwave safe container, and microwave until the temperature of the milk reaches 105 - 110 degrees Fahrenheit.
Add 1 tsp of sugar to the milk, then add the packet of yeast. Allow the yeast to sit for about 10 minutes on the countertop until it rises and the top becomes puffy.
In a separate bowl, mix 3 ¼ cups flour, 2 tbsp sugar, 4 tbsp olive oil, 1 cup water, and the risen milk/yeast mixture together. Whisk it for a few minutes until the combination is smooth.
Grease a glass bowl with nonstick spray, put the dough in the bowl, cover with a dish towel, and put in a warm, dark place for about an hour, or until the dough doubles in size.
After an hour, fill a skillet with about an inch of oil. Turn the heat to medium and heat until the oil reaches 300 degrees Fahrenheit.
Use an ice cream scoop to scoop out ball-shaped scoops of dough. Dip your scoop in water or spray with nonstick spray between each scoop so that the dough doesn’t stick to the utensil.
Fry the batter in the oil, a few donuts at the time. When one side browns, flip them over so that they are evenly browned on each side. As the donuts are done, remove them to a paper-towel lined plate to remove any excess grease.
Once the loukoumades are cooked, move them to a serving platter. Warm the ½ cup honey in the microwave for about 30 seconds until it is easily pourable. Pour the desired amount over the donuts. Sprinkle the donuts with ¼ cup chopped walnuts and ½ tsp cinnamon. Enjoy!