Abstract: Fuel is burned in the lower chamber of a furnace with hot products of combustion rising past an air-to-air heat exchanger to an upper chamber to which outside air is supplied for secondary combustion. Air is heated in a compartment above the upper combustion chamber and passes, together with air within the heat exchanger, through a closed circulation system to a duct within a stone-filled heat storage chamber, then to an air-to-water heat exchanger, through the stones in the heat storage chamber and back to the heating compartment and air-to-heat exchanger. Water heated in the air-to-water exchanger is used for space heating purposes, as in baseboard hot water heaters. Some of the heat may also be used to power a heat engine and/or to dry wood to be used as fuel in the lower combustion chamber.