As noted above, the dmg for version 2 of my program was not showing the background. For the life of me, I don’t know why this worked but it did.
I made a new dmg with version 2 of my program, checked the files via terminal and the background file was in the hidden .DropDMGBackground folder. However, the background image was not displayed. Rather than upload a large dmg file for you to look at, I removed my application from the disk image source folder and re-made the disk image. On opening the new disk image, the background was there. So I deleted the disk image, put the application file back in the source folder and re-made the disk image. Viola’… the background is now there as are all the files.
Don’t know what has changed but maybe this can help someone should they experience the same issues.