<?xml version="1.0" encoding="us-ascii"?><InstanceReport xmlns:xsd="http://www.w3.org/2001/XMLSchema" xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance"><Version>2.4.0.8</Version><ReportLongName>0008 - Disclosure - 1. Description of Business, Organization and Principles of Consolidation</ReportLongName><DisplayLabelColumn>true</DisplayLabelColumn><ShowElementNames>false</ShowElementNames><RoundingOption /><HasEmbeddedReports>false</HasEmbeddedReports><Columns><Column FlagID="0"><Id>1</Id><IsAbstractGroupTitle>false</IsAbstractGroupTitle><LabelSeparator>

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</LabelSeparator><Level>1</Level><ElementName>us-gaap_AccountingPoliciesAbstract</ElementName><ElementPrefix>us-gaap_</ElementPrefix><IsBaseElement>true</IsBaseElement><BalanceType>na</BalanceType><PeriodType>duration</PeriodType><IsReportTitle>false</IsReportTitle><IsSegmentTitle>false</IsSegmentTitle><IsCalendarTitle>false</IsCalendarTitle><IsEquityPrevioslyReportedAsRow>false</IsEquityPrevioslyReportedAsRow><IsEquityAdjustmentRow>false</IsEquityAdjustmentRow><IsBeginningBalance>false</IsBeginningBalance><IsEndingBalance>false</IsEndingBalance><IsReverseSign>false</IsReverseSign><FootnoteIndexer /><Cells><Cell FlagID="0" ContextID="" UnitID=""><Id>1</Id><IsNumeric>false</IsNumeric><IsRatio>false</IsRatio><DisplayZeroAsNone>false</DisplayZeroAsNone><NumericAmount>0</NumericAmount><RoundedNumericAmount>0</RoundedNumericAmount><NonNumbericText /><FootnoteIndexer /><CurrencyCode /><CurrencySymbol /><IsIndependantCurrency>false</IsIndependantCurrency><ShowCurrencySymbol>false</ShowCurrencySymbol><DisplayDateInUSFormat>false</DisplayDateInUSFormat></Cell></Cells><ElementDataType>xbrli:stringItemType</ElementDataType><SimpleDataType>string</SimpleDataType><IsTotalLabel>false</IsTotalLabel><UnitID>0</UnitID><Label>Accounting Policies [Abstract]</Label></Row><Row FlagID="0"><Id>2</Id><IsAbstractGroupTitle>false</IsAbstractGroupTitle><LabelSeparator>

</LabelSeparator><Level>2</Level><ElementName>us-gaap_BusinessDescriptionAndBasisOfPresentationTextBlock</ElementName><ElementPrefix>us-gaap_</ElementPrefix><IsBaseElement>true</IsBaseElement><BalanceType>na</BalanceType><PeriodType>duration</PeriodType><IsReportTitle>false</IsReportTitle><IsSegmentTitle>false</IsSegmentTitle><IsCalendarTitle>false</IsCalendarTitle><IsEquityPrevioslyReportedAsRow>false</IsEquityPrevioslyReportedAsRow><IsEquityAdjustmentRow>false</IsEquityAdjustmentRow><IsBeginningBalance>false</IsBeginningBalance><IsEndingBalance>false</IsEndingBalance><IsReverseSign>false</IsReverseSign><FootnoteIndexer /><Cells><Cell FlagID="0" ContextID="From2013-01-01to2013-06-30" UnitID=""><Id>1</Id><IsNumeric>false</IsNumeric><IsRatio>false</IsRatio><DisplayZeroAsNone>false</DisplayZeroAsNone><NumericAmount>0</NumericAmount><RoundedNumericAmount>0</RoundedNumericAmount><NonNumbericText>&lt;p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;&lt;b&gt;&lt;i&gt;Description
of Business&lt;/i&gt;&lt;/b&gt;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;&amp;#160;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;One
Horizon Group, Inc., (the &amp;#147;Company&amp;#148; or &amp;#147;Horizon&amp;#148;) develops proprietary software primarily in the Voice over
Internet Protocol (VoIP) and bandwidth optimization markets (&amp;#147;Horizon Globex&amp;#148;) and provides it under perpetual license
arrangements (&amp;#147;Master License&amp;#148;) throughout the world. The Company sells related user licenses and software maintenance
services as well.&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;&amp;#160;&amp;#160;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/12pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;&lt;b&gt;&lt;i&gt;Organization
&lt;/i&gt;&lt;/b&gt;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/12pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;&amp;#160;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/12pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;On
November 30, 2012, the predecessor company &amp;#147;ICE&amp;#148; acquired all of the stock of One Horizon Group plc (&amp;#147;OHG&amp;#148;),
a company incorporated in the United Kingdom through the issuance of 17,853,476,138 shares of common stock of the Company. Upon
completion of this transaction the former shareholders of OHG controlled approximately 96% of the outstanding stock of the Company
and OHG was deemed the acquiring entity. The share exchange has been accounted for as a reverse acquisition. The historical combined
financial statements of OHG form the consolidated financial statements presented. For accounting purposes ICE was considered to
have been acquired as of November 30, 2012.&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/12pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;&amp;#160;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/12pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;The
consolidated financial statements reflect the deemed acquisition of ICE by OHG and the recognition of the 696,030,538 shares of
common stock, with a fair value of $170,000, at November 30, 2012.&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/12pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;&amp;#160;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/12pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;On
December 31, 2012 the Company sold the operations of Global Integrated Media Limited and Modizo for the return of 42,000,000 shares
of common stock with a fair value of $420,000. These companies were subsidiaries and divisions of ICE.&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/12pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;&amp;#160;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/12pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;&lt;b&gt;&lt;i&gt;Interim
Period Financial Statements&lt;/i&gt;&lt;/b&gt;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/12pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;&lt;b&gt;&lt;i&gt;&amp;#160;&lt;/i&gt;&lt;/b&gt;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/12pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;The
accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting
principles in the United States (&amp;#147;GAAP&amp;#148;) for interim financial information and with the Securities and Exchange Commission&amp;#146;s
instructions. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.
The results of operations reflect interim adjustments, all of which are of a normal recurring nature and, in the opinion of management,
are necessary for a fair presentation of the results for such interim period. The results reported in these interim consolidated
financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. Certain
information and note disclosure normally included in financial statements prepared in accordance with GAAP have been condensed
or omitted pursuant to the Securities and Exchange Commission&amp;#146;s rules and regulations. These unaudited interim consolidated
financial statements should be read in conjunction with the audited consolidated financial statements included in the Company&amp;#146;s
Annual Report on Form 10-K for the six months ended December 31, 2012, as filed with the Securities and Exchange Commission on
May 13, 2013.&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/12pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;&amp;#160;&amp;#160;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;&lt;b&gt;&lt;i&gt;Principles
of Consolidation and Combination&lt;/i&gt;&lt;/b&gt;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;&lt;b&gt;&lt;i&gt;&amp;#160;&lt;/i&gt;&lt;/b&gt;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;The
June 30, 2013 consolidated financial statements include the accounts of One Horizon Group, Inc. and its wholly owned subsidiaries
OHG, Horizon Globex GmbH, Abbey Technology Gmb, One Horizon Hong Kong Limited and Horizon Network Technology Co. Ltd.&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;&amp;#160;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;/p&gt;

&lt;p style="font: 8pt Times New Roman, Times, Serif; margin: 0"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;The comparative
statement of operations, comprehensive income and cash flows for the six months ended June 30, 2012 include the combined accounts
of One Horizon Group plc, Horizon Globex GmbH and Abbey Technology GmbH. These combined financial statements present the carve-out
combined financial position and results of operations of OHG without including the accounts of Satcom Global, a group of former
wholly-owned subsidiaries of OHG, which were disposed of in October 2012. All revenues, expenses, gains and losses, assets and
liabilities related to the Satcom Global business have been eliminated from these combined financial statements.&lt;/font&gt;&lt;/p&gt;



&lt;p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;/p&gt;

&lt;p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;&amp;#160;&amp;#160;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 8pt Times New Roman, Times, Serif"&gt;All
significant intercompany balances and transactions have been eliminated.&lt;/font&gt;&lt;/p&gt;</NonNumbericText><FootnoteIndexer /><CurrencyCode /><CurrencySymbol /><IsIndependantCurrency>false</IsIndependantCurrency><ShowCurrencySymbol>false</ShowCurrencySymbol><DisplayDateInUSFormat>false</DisplayDateInUSFormat></Cell></Cells><ElementDataType>nonnum:textBlockItemType</ElementDataType><SimpleDataType>na</SimpleDataType><ElementDefenition>The entire disclosure for the business description and basis of presentation concepts.  Business description describes the nature and type of organization including but not limited to organizational structure as may be applicable to holding companies, parent and subsidiary relationships, business divisions, business units, business segments, affiliates and information about significant ownership of the reporting entity.  Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS).</ElementDefenition><ElementReferences>No definition available.</ElementReferences><IsTotalLabel>false</IsTotalLabel><UnitID>0</UnitID><Label>1. Description of Business, Organization and Principles of Consolidation</Label></Row></Rows><Footnotes /><IsEquityReport>false</IsEquityReport><ReportName>1. Description of Business, Organization and Principles of Consolidation</ReportName><MonetaryRoundingLevel>UnKnown</MonetaryRoundingLevel><SharesRoundingLevel>UnKnown</SharesRoundingLevel><PerShareRoundingLevel>UnKnown</PerShareRoundingLevel><ExchangeRateRoundingLevel>UnKnown</ExchangeRateRoundingLevel><HasCustomUnits>true</HasCustomUnits><IsEmbedReport>false</IsEmbedReport><IsMultiCurrency>false</IsMultiCurrency><ReportType>Sheet</ReportType><RoleURI>http://onehorizongroup.com/role/DescriptionOfBusinessOrganizationAndPrinciplesOfConsolidation</RoleURI><NumberOfCols>1</NumberOfCols><NumberOfRows>2</NumberOfRows></InstanceReport>
