Abstract: A compact, high efficiency hot air furnace including a heat exchanger assembly located in a heat exchange chamber through which comfort air is passed to be heated. The heat exchanger assembly includes a drum-like combustion member located such that its axis extends across the flow path of comfort air. A supplementary heat exchanger or condenser is located a spaced distance from the combustion member and is disposed in the comfort air flow path upstream from the combustion member. A transfer channel extends from one end of a cylindrical wall forming part of the combustion member and communicates combustion by-products to the condenser. Heat exchange fins are mounted to the cylindrical wall of the combustion member and along a wall of the transfer member. A diffuser located within the combustion member is cup-shaped and includes a wall portion positioned between a burner and a transfer channel opening which prevents the burner flame from extending into the transfer channel.